Chapter 1

AS - 4 Contingencies & Events occur-

ing after Balance Sheet Date
Question 1
As per AS 4, ‘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.
Though the theft, by the cashier Rs.5,00,000, was detected after the balance sheet date (before approval
of financial statements) but it is an additional information materially affecting the determination of
the cash amount relating to conditions existing at the balance sheet date.
Therefore, it is necessary to make the necessary adjustments in the financial statements of the compa-
ny for the year ended 31st March, 2013 for recognition of the loss amounting Rs. 5,00,000.
Question 2
As per AS 4 “Contingencies and Events Occurring after the Balance Sheet Date”, states that adjust-
ments 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. The destruction of ware-
house due to earthquake did not exist on the balance sheet date i.e. 31.3.2019. Therefore, loss occurred
due to earthquake is not to be recognized in the financial year 2018-2019.
You may give note gor Going Concern Assumption.

Question 3
As per AS 4 “Contingencies and Events Ocurring 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.
In the given case, company should make the provision for doubtful debts, as legal suit has been filed
on 31st March, 2012 and the chances of recovery from the suit are not good. Though, the actual re-
sult of legal suit will be known in future yet situation of non-recovery from the debtors exists before
finalisation of financial statements. Therefore, provision for doubtful debts should be made for the
year ended on 31st March, 2012.
Question 4
According to AS 4 “Contingencies and Events Occurring after the Balance Sheet Date”, adjustments
toassets and liabilities are required for events occurring after the balance sheet date that provide ad-
ditional information materially affecting the determination of the amounts relating to conditions ex-
isting at the balance sheet date.
In the given case, though the debtor became insolvent after balance sheet date, yet he had suffered
heavy loss (not covered by theinsurance), before the balance sheet date and this loss was the cause of
the insolvency of the debtor.

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Accounting

Question 5
(i) According to AS 4 “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. In
the given case, sale of immovable property was carried out before the closure of the books of accounts.
This is clearly an event occurring after the balance sheet date but agreement to sell was effected on
1st March, 2013 i.e. before the balance sheet date. Registration of the sale deed on 15th April, 2013,
simply provides additional information relating to the conditions existing at the balance sheet date.
Therefore, adjustment to assets for sale of land is necessary in the financial statements of Pradeep Ltd.
for the year ended 31st March, 2013.
(ii) AS 4 (Revised) defines “Events occurring after the balance sheet date” as those significant events,
both favorable and unfavorable, that occur between the balance sheet date and the date on which the
financial statements are approved by the Board of Directors in the case of a company. Accordingly,
the acquisition of another company is an event occurring after the balance sheet date. However, no
adjustment to assets and liabilities is required as the event does not affect the determination and the
condition of the amounts stated in the financial statements forthe year ended 31st March, 2013. Ap-
plying provisions of the standard which clearly state that/disclosure should be made in the report of
the approving authority of those events occurring after the balance sheet date that represent material
changes and commitments affecting the financial position of the enterprise, the investment of ` 40
lakhs in April, 2013 in the acquisition of another company should be disclosed in the report of the
Board of Directors to enable users of financial statements to make proper evaluations and decisions.

Question 6
Even if the cheques bear the date 31st March or before, the cheques received after 31st March do not
represent any condition existing on 31st March. Thus the collection of cheques after balance sheet
date is not an adjusting event. Recognition of cheques in hand is therefore not consistent with re-
quirements of AS 4 (Revised). Moreover, the collection of cheques after balance sheet date does not
represent any material change or commitments affecting financial position of the enterprise, and so
no disclosure of such collections in the Directors’ Report is necessary.
It should also be noted that, the Framework for Preparation and Presentation of Financial Statement
defines assets as resources controlled by an enterprise as a result of past events from which economic
benefits are expected to flow to the enterprise. Since the company acquires custody of the cheques
after 31st March, it does not have any control over the cheques on 31st March and hence cheques in
hand do not qualify to be recognised as asset on 31st March.

Question 7
This event occurred after March 31, 2016 but before September 04, 2016 is an event occurring after
the balance sheet date. But this event is not affecting financial position on the date of balance sheet
therefore it is a non-adjusting event

Question 8
As per AS 4 “Contingencies and Events Occurring after the Balance Sheet Date”, states that adjust-
ments 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.
In this case, fall in the value of investments due to subsequent events are non-adjusting events and so
no adjustment shall be made in the financial statements for such fall. Since the fall is material, a dis-
closure shall be made in report of governing authority.

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 AS-4 Contingencies & Events Occuring after B/S Date

Question 9
1. Suit filed against the company is a contingent liability but it was not existing as on balance sheet
date as the suit was filed on 20th April after the balance Sheet date. As per AS 4, ‘Contingencies’
used in the Standard is restricted to conditions or situations at the balance sheet date, the financial
effect of which is to be determined by future events which may or may not occur. Hence, it will
have no effect on financial statements and will be a non-adjusting event.
2. In the given case, terms and conditions for acquisition of business were finalised and carried out
before the closure of the books of accounts but transaction for payment of financial resources was
effected in April, 2018. This is clearly an event occuring after the balance sheet date.Hence, nec-
essary adjustment to assets and liabilities for acquisition of business is necessary in the financial
statements for the year ended 31st March 2018.
3. Only those significant events which occur between the balance sheet date and the date on which
the financial statements are approved, may indicate the need for adjustment to assets and liabilities
existing on the balance sheet date or may require disclosure. In the given case, theft of cash was
detected on 16th July, 18 after approval of financial statements by the Board of Directors, hence no
treatment is required.
4. 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. In the given
case, sale of immovable property was under proposal stage (negotiations also not started) on the
balance sheet date. Therefore, no adjustment to assets for sale of immovable proerty is required in
the financial statements for the year ended 31st March, 2018.
5. The condition of fire occurrence was not existing on the balance sheet date. Only the disclosure
regarding event of fire and loss being completely insured may be given in the report of approving
authority.

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