AS 4 - CONTINGENCIES & EVENTS OCCURRING AFTER THE BALANCE SHEET DATE AS 4.1
AS 4 - CONTINGENCIES & EVENTS OCCURRING AFTER THE
BALANCE SHEET DATE
NO. QUESTIONS R1 R2 R3 SPECIAL POINT
1 ICAI ILLUSTRATION 1
2 ICAI ILLUSTRATION 2, RTP Nov 2015
3 ICAI ILLUSTRATION 3
4 ICAI ILLUSTRATION 4
5 ICAI ILLUSTRATION 5
6 ICAI ILLUSTRATION 6, Nov 2018 RTP
7 ICAI ILLUSTRATION 7
8 RTP May 2018 / RTP MAY 20
9 QP Nov 18
10 INTER RTP May 2019
11 INTER QP MAY 2019 / ICAI PRACTICAL
QUESTION 15
12 RTP NOV 18
13 RTP NOV 20
14 RTP MAY 21
15 RTP NOV 21
16 QP JULY 21
17 Mock test OCT 21 Series 1
18 Mock test OCT 21 Series 2 / INTER RTP
NOV 19
19 QP DEC 21
20 RTP May 22
21 MTP March 2022 Test Series 1
22 RTP Nov 22
23 MTP Sep 22 (Series 1)
24 Exam Nov 22
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,AS 4 - CONTINGENCIES & EVENTS OCCURRING AFTER THE BALANCE SHEET DATE AS 4.2
Let’s Get Started….With Class Work
1. ICAI ILLUSTRATION 1
In X Co. Ltd., theft of cash of ` 5 lakhs by the cashier in January, 20X1 was detected only
in May, 20X1. The accounts of the company were not yet approved by the Board of Directors
of the company.
Decide Whether the theft of cash has to be adjusted in the accounts of the company for the
year ended 31.3.20X1.
SOLUTION
FACTS:
X Co. Ltd has detected a theft which has occurred in January 20X1 before approval of
accounts by Board of Directors.
REFERENCE:
As per AS 4 (Revised) ‘Contingencies and Events occurring after the Balance Sheet Date’,
an event occurring after the balance sheet date may require adjustment to the reported
values of assets, liabilities, expenses or incomes. Assets and liabilities should be adjusted
for events occurring after the balance sheet date that provide additional evidence to assist
the estimation of amounts relating to conditions existing at the balance sheet date.
ANALYSIS:
In light of the facts above, the event of detection of theft has happened before the approval
of accounts by Board of Directors and it was a condition existing at the balance sheet
date, making the amount of theft being required to be adjusted in the accounts of the
company.
CONCLUSION:
If a fraud of the accounting period is detected after the balance sheet date but before
approval of the financial statements, it is necessary to recognise the loss amounting `
5,00,000 and adjust the accounts of the company for the year ended 31st March, 20X1.
2. ICAI ILLUSTRATION 2, RTP Nov 2015
An earthquake destroyed a major warehouse of ACO Ltd. on 20.5.20X2. The accounting year
of the company ended on 31.3.20X2. The accounts were approved on 30.6.20X2. The loss
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,AS 4 - CONTINGENCIES & EVENTS OCCURRING AFTER THE BALANCE SHEET DATE AS 4.3
from earthquake is estimated at ` 30 lakhs. State with reasons, whether the loss due to
earthquake is an adjusting or non-adjusting event and how the fact of loss is to be disclosed
by the company.
SOLUTION
FACTS:
ACO Ltd. has suffered has suffered a loss of ` 30 lakhs due to earthquake on 20.05.2022
REFERENCE:
AS 4 (Revised) “Contingencies and Events Occurring after the Balance Sheet Date”, states
that adjustments to assets and liabilities are not appropriate for events occurring after the
balance sheet date, if such events do not relate to conditions existing at the balance sheet
date.
However, unusual changes affecting the existence or substratum of the enterprise after the
balance sheet date may indicate a need to consider the use of fundamental accounting
assumption of going concern in the preparation of the financial statements.
ANALYSIS:
The destruction of warehouse due to earthquake did not exist on the balance sheet date
i.e., 31.3.20X2. However, the earthquake has caused major destruction; therefore,
fundamental accounting assumption of going concern is called upon. Considering that the
going concern assumption is still valid, the fact of earthquake together with an estimated
loss of ` 30 lakhs should be disclosed for the financial year 20X1-20X2.
CONCLUSION:
The loss occurred due to earthquake is not to be recognised in financial statement.
Disclosure of estimated loss and fact about earthquake should be disclosed to enable users
of financial statements to make proper evaluation and decisions.
3. ICAI ILLUSTRATION 3
A company has filed a legal suit against the debtor from whom ` 15 lakh is recoverable as
on 31.3.20X1. The chances of recovery by way of legal suit are not good as per legal opinion
given by the counsel in April, 20X1. Can the company provide for full amount of ` 15 lakhs
as provision for doubtful debts? Discuss.
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, AS 4 - CONTINGENCIES & EVENTS OCCURRING AFTER THE BALANCE SHEET DATE AS 4.4
SOLUTION
FACTS:
Legal suit has been filed for recovery of ` 15 lakh from debtor for which the recovery
chances are not good as per the legal opinion received in April 20X1.
REFERENCE:
As per AS 4 (Revised) “Contingencies and Events Occurring After the Balance Sheet Date”,
assets and liabilities should be adjusted for events occurring after the balance sheet date
that provide additional evidence to assist the estimation of amounts relating to conditions
existing at the balance sheet date.
ANALYSIS:
As per the facts and reference above, the condition of recovery from debtors existed at the
Balance sheet date. Hence, the company should make the provision for doubtful debts, as
legal suit has been filed on 31st March, 20X1 and the chances of recovery from the suit are
not good. Though, the actual result of legal suit will be known in future yet situation of
non-recovery from the debtors exists before finalisation of financial statements.
CONCLUSION:
Provision for doubtful debts should be made for the year ended on 31st March, 20X1.
4. ICAI ILLUSTRATION 4
In preparing the financial statements of R Ltd. for the year ended 31st March, 20X1, you come
across the following information. State with reasons, how you would deal with this in the
financial statements:
The company invested 100 lakhs in April, 20X1 before approval of Financial Statements by
the Board of directors in the acquisition of another company doing similar business, the
negotiations for which had started during the year.
SOLUTION
FACTS:
R Ltd. has invested 100 lakhs in April, 20X1 before approval of Financial Statements by the
Board of directors in the acquisition of another company.
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AS 4 - CONTINGENCIES & EVENTS OCCURRING AFTER THE
BALANCE SHEET DATE
NO. QUESTIONS R1 R2 R3 SPECIAL POINT
1 ICAI ILLUSTRATION 1
2 ICAI ILLUSTRATION 2, RTP Nov 2015
3 ICAI ILLUSTRATION 3
4 ICAI ILLUSTRATION 4
5 ICAI ILLUSTRATION 5
6 ICAI ILLUSTRATION 6, Nov 2018 RTP
7 ICAI ILLUSTRATION 7
8 RTP May 2018 / RTP MAY 20
9 QP Nov 18
10 INTER RTP May 2019
11 INTER QP MAY 2019 / ICAI PRACTICAL
QUESTION 15
12 RTP NOV 18
13 RTP NOV 20
14 RTP MAY 21
15 RTP NOV 21
16 QP JULY 21
17 Mock test OCT 21 Series 1
18 Mock test OCT 21 Series 2 / INTER RTP
NOV 19
19 QP DEC 21
20 RTP May 22
21 MTP March 2022 Test Series 1
22 RTP Nov 22
23 MTP Sep 22 (Series 1)
24 Exam Nov 22
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,AS 4 - CONTINGENCIES & EVENTS OCCURRING AFTER THE BALANCE SHEET DATE AS 4.2
Let’s Get Started….With Class Work
1. ICAI ILLUSTRATION 1
In X Co. Ltd., theft of cash of ` 5 lakhs by the cashier in January, 20X1 was detected only
in May, 20X1. The accounts of the company were not yet approved by the Board of Directors
of the company.
Decide Whether the theft of cash has to be adjusted in the accounts of the company for the
year ended 31.3.20X1.
SOLUTION
FACTS:
X Co. Ltd has detected a theft which has occurred in January 20X1 before approval of
accounts by Board of Directors.
REFERENCE:
As per AS 4 (Revised) ‘Contingencies and Events occurring after the Balance Sheet Date’,
an event occurring after the balance sheet date may require adjustment to the reported
values of assets, liabilities, expenses or incomes. Assets and liabilities should be adjusted
for events occurring after the balance sheet date that provide additional evidence to assist
the estimation of amounts relating to conditions existing at the balance sheet date.
ANALYSIS:
In light of the facts above, the event of detection of theft has happened before the approval
of accounts by Board of Directors and it was a condition existing at the balance sheet
date, making the amount of theft being required to be adjusted in the accounts of the
company.
CONCLUSION:
If a fraud of the accounting period is detected after the balance sheet date but before
approval of the financial statements, it is necessary to recognise the loss amounting `
5,00,000 and adjust the accounts of the company for the year ended 31st March, 20X1.
2. ICAI ILLUSTRATION 2, RTP Nov 2015
An earthquake destroyed a major warehouse of ACO Ltd. on 20.5.20X2. The accounting year
of the company ended on 31.3.20X2. The accounts were approved on 30.6.20X2. The loss
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,AS 4 - CONTINGENCIES & EVENTS OCCURRING AFTER THE BALANCE SHEET DATE AS 4.3
from earthquake is estimated at ` 30 lakhs. State with reasons, whether the loss due to
earthquake is an adjusting or non-adjusting event and how the fact of loss is to be disclosed
by the company.
SOLUTION
FACTS:
ACO Ltd. has suffered has suffered a loss of ` 30 lakhs due to earthquake on 20.05.2022
REFERENCE:
AS 4 (Revised) “Contingencies and Events Occurring after the Balance Sheet Date”, states
that adjustments to assets and liabilities are not appropriate for events occurring after the
balance sheet date, if such events do not relate to conditions existing at the balance sheet
date.
However, unusual changes affecting the existence or substratum of the enterprise after the
balance sheet date may indicate a need to consider the use of fundamental accounting
assumption of going concern in the preparation of the financial statements.
ANALYSIS:
The destruction of warehouse due to earthquake did not exist on the balance sheet date
i.e., 31.3.20X2. However, the earthquake has caused major destruction; therefore,
fundamental accounting assumption of going concern is called upon. Considering that the
going concern assumption is still valid, the fact of earthquake together with an estimated
loss of ` 30 lakhs should be disclosed for the financial year 20X1-20X2.
CONCLUSION:
The loss occurred due to earthquake is not to be recognised in financial statement.
Disclosure of estimated loss and fact about earthquake should be disclosed to enable users
of financial statements to make proper evaluation and decisions.
3. ICAI ILLUSTRATION 3
A company has filed a legal suit against the debtor from whom ` 15 lakh is recoverable as
on 31.3.20X1. The chances of recovery by way of legal suit are not good as per legal opinion
given by the counsel in April, 20X1. Can the company provide for full amount of ` 15 lakhs
as provision for doubtful debts? Discuss.
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, AS 4 - CONTINGENCIES & EVENTS OCCURRING AFTER THE BALANCE SHEET DATE AS 4.4
SOLUTION
FACTS:
Legal suit has been filed for recovery of ` 15 lakh from debtor for which the recovery
chances are not good as per the legal opinion received in April 20X1.
REFERENCE:
As per AS 4 (Revised) “Contingencies and Events Occurring After the Balance Sheet Date”,
assets and liabilities should be adjusted for events occurring after the balance sheet date
that provide additional evidence to assist the estimation of amounts relating to conditions
existing at the balance sheet date.
ANALYSIS:
As per the facts and reference above, the condition of recovery from debtors existed at the
Balance sheet date. Hence, the company should make the provision for doubtful debts, as
legal suit has been filed on 31st March, 20X1 and the chances of recovery from the suit are
not good. Though, the actual result of legal suit will be known in future yet situation of
non-recovery from the debtors exists before finalisation of financial statements.
CONCLUSION:
Provision for doubtful debts should be made for the year ended on 31st March, 20X1.
4. ICAI ILLUSTRATION 4
In preparing the financial statements of R Ltd. for the year ended 31st March, 20X1, you come
across the following information. State with reasons, how you would deal with this in the
financial statements:
The company invested 100 lakhs in April, 20X1 before approval of Financial Statements by
the Board of directors in the acquisition of another company doing similar business, the
negotiations for which had started during the year.
SOLUTION
FACTS:
R Ltd. has invested 100 lakhs in April, 20X1 before approval of Financial Statements by the
Board of directors in the acquisition of another company.
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