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CA Final · Financial Reporting · Ind AS 10 Events after the Reporting Period

Tara Steels Ltd. has a reporting date of 31 March 2026. At that date it carried a provision of Rs 30 lakh for a customer's damages claim, based on legal advice, for a dispute arising from supplies made in 2025. On 15 May 2026, before the Board approved the financial statements on 30 May 2026, the court settled the case, ordering Tara to pay Rs 45 lakh. Separately, Tara had an undrawn warranty of Rs 2 lakh unrelated to the case. What is the effect on Tara's financial statements for the year ended 31 March 2026?

Tara should increase the provision by Rs 15 lakh, from Rs 30 lakh to Rs 45 lakh, in the year ended 31 March 2026. The court settlement after the reporting period confirms a present obligation existing at year-end, so it is an adjusting event. Merely disclosing the extra amount would be incorrect.

  1. ANo change to the provision, with the additional Rs 15 lakh disclosed as a contingent liability
  2. BIncrease the provision by Rs 15 lakh to Rs 45 lakh, as an adjusting eventCorrect
  3. CRecognise Rs 45 lakh as an expense in the year ending 31 March 2027
  4. DIncrease the provision by Rs 17 lakh, including the unrelated warranty

Explanation

The settlement of a court case after the reporting period that confirms a present obligation at the end of the reporting period is an adjusting event. The entity adjusts the previously recognised provision rather than merely disclosing a contingent liability. The obligation was Rs 45 lakh against the Rs 30 lakh provided, so the increase is Rs 15 lakh. The unrelated warranty is not part of the case and is not adjusted.

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