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

Ranjit Textiles Ltd. closes its books for the year ended 31 March 2026, and the financial statements are approved by the board on 20 May 2026. On 10 April 2026, a fire destroyed a warehouse holding inventory of Rs 18 lakh, and the loss is not covered by insurance. The company is a going concern. How should the loss be treated in the financial statements for the year ended 31 March 2026?

The loss should not be adjusted in the FY 2025-26 figures. The fire happened after the balance sheet date and reflects no condition existing on 31 March 2026, so it is a non-adjusting event. Being material, its nature and estimated financial effect must be disclosed in the approving authority's report.

  1. AProvide for Rs 18 lakh as a loss in the statement of profit and loss of FY 2025-26
  2. BDo not adjust the figures; disclose the nature of the event and estimated financial effect in the report of the approving authorityCorrect
  3. CIgnore it completely because it occurred in the next financial year
  4. DReduce closing inventory by Rs 18 lakh and show it as a prior period item

Explanation

The fire occurred after the balance sheet date and does not provide evidence of conditions existing at 31 March 2026. It is a non-adjusting event, so no adjustment is made, but because it is material, its nature and estimated financial effect are disclosed. Providing for it in FY 2025-26 would be wrong as it would treat a non-adjusting event as adjusting.

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