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CA Intermediate · Advanced Accounting · AS 4 Contingencies and Events occurring after the Balance Sheet Date

Nilgiri Tea Estates Ltd. has financial statements for the year ended 31 March 2026 approved on 15 June 2026. In April 2026 the board decided to liquidate the company because of continuing losses, and no realistic alternative exists. The financial statements had been prepared on a going concern basis. What is the correct accounting under AS 4?

The 2025-26 financial statements must be prepared on a basis other than going concern and that fact disclosed. A decision to liquidate after the balance sheet date shows the going concern assumption is no longer appropriate, which requires adjustment even though it is a later event.

  1. AContinue the going concern basis and merely disclose the liquidation decision as a contingent liability
  2. BAdjust only the inventory to net realisable value and keep the going concern basis
  3. CIgnore the decision as it is a post-balance-sheet event
  4. DPrepare the 2025-26 financial statements on a basis other than going concern, with the changed basis disclosedCorrect

Explanation

AS 4 requires assets and liabilities to be adjusted for events after the balance sheet date that indicate the going concern assumption is no longer appropriate, even if the event occurs after the date. Hence the statements must not be prepared on a going concern basis, and the basis used must be disclosed. Treating it as a mere non-adjusting event (option A or C) is incorrect.

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