32 Events occurring after the Date of Balance Sheet AS 4

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AS 4
Events occurring after the Date of Balance Sheet

Lectures on AS - 4
1. Let's start with areas with which standard deals:
This Standard deals with the treatment in financial statements of—
(a) contingencies, and
(b) events occurring after the balance sheet date.
2. Lets also discuss subjects which are Excluded from this standard:
The following subjects, which may result in contingencies, are excluded from the scope of this Standard in
view of special considerations applicable to them:
(a) liabilities of life assurance and general insurance enterprises arising from policies issued;
(b) obligations under retirement benefit plans; and
(c) commitments arising from long-term lease contracts.
3. Now lets us discuss an important issue that is - Events occurring after the balance sheet date
Events occurring after the balance sheet date are those significant events, both favourable and unfavourable,
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, and, by the corresponding approving authority in the case
of any other entity.
3.1 Types of Events
AS 4 Events occurring after the Date of Balance Sheet 33
Two types of events can be identified:
(a) those which provide further evidence of conditions that existed at the balance sheet date; and
(b) those which are indicative of conditions that arose subsequent to the balance sheet date.
3.2 Events Occurring after the Balance Sheet Date in detail
1. Events which occur between the balance sheet date and the date on which the financial statements are
approved, may indicate the need for adjustments to assets and liabilities as at the balance sheet date or may
require disclosure.
2. Adjustments to assets and liabilities are required for events occurring after the balance sheet date that
provide additional information materially affecting the determination of the amounts relating to conditions
existing at the balance sheet date. For example, an adjustment may be made for a loss on a trade receivable
account which is confirmed by the insolvency of a customer which occurs after the balance sheet date.
3. 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. An example is the decline in
market value of investments between the balance sheet date and the date on which the financial statements
are approved. Ordinary fluctuations in market values do not normally relate to the condition of the
investments at the balance sheet date, but reflect circumstances which have occurred in the following
period.
4. Events occurring after the balance sheet date which do not affect the figures stated in the financial
statements would not normally require disclosure in the financial statements although they may be of such
significance that they may require a disclosure in the report of the approving authority to enable users of
financial statements to make proper evaluations and decisions.
5. There are events which, although they take place after the balance sheet date, are sometimes reflected in
the financial statements because of statutory requirements or because of their special nature.
4. Dividends
Such items include the amount of dividend proposed or declared by the enterprise after the balance sheet
date in respect of the period covered by the financial statements.
5. Enterprise ceases to be going concern
Events occurring after the balance sheet date may indicate that the enterprise ceases to be a going concern.
A deterioration in operating results and financial position, or unusual changes affecting the existence or
substratum of the enterprise after the balance sheet date (e.g., destruction of a major production plant by a
fire after the balance sheet date) may indicate a need to consider whether it is proper to use the fundamental
accounting assumption of going concern in the preparation of the financial statements.
If disclosure of events occurring after the balance sheet date in the report of the approving authority is
required the following information should be provided:
(a) the nature of the event;
(b) an estimate of the financial effect, or a statement that such an estimate cannot be made.
34 Events occurring after the Date of Balance Sheet AS 4
6. Contingencies:
This Standard that deal with contingencies that are applicable only to the extent not covered by other
Accounting Standards. For example, the impairment of financial assets such as impairment of receivables
(commonly known as provision for bad and doubtful debts) is governed by this Standard.
A contingency is a condition or situation, the ultimate outcome of which, gain or loss, will be known or
determined only on the occurrence, or non-occurrence, of one or more uncertain future events.
The term “contingencies” used in this 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.
The amount of a contingent loss should be provided for by a charge in the statement of profit and loss if:
(a) it is probable that future events will confirm that, after taking into account any related probable
recovery, an asset has been impaired or a liability has been incurred as at the balance sheet date, and
(b) a reasonable estimate of the amount of the resulting loss can be made.
The existence of a contingent loss should be disclosed in the financial statements if either of the conditions
mentioned above is not met, unless the possibility of a loss is remote.
7. Contingent gains
Contingent gains should not be recognised in the financial statements.
8. Disclosure of Contingencies
If disclosure of contingencies is required the following information should be provided:
(a) the nature of the contingency;
(b) the uncertainties which may affect the future outcome;
(c) an estimate of the financial effect, or a statement that such an estimate cannot be made.

Event occurring after the Balance Sheet date

Evidence of such condition been existed at the No Evidence of such condition been existed at the
Balance Sheet date Balance Sheet date

Adjusting event Non-adjusting event

Adjustment to assets and liabilities is required Adjustment to assets and liabilities is not required

Disclosure in the report of the approving authority is

Disclosure in the financial statements is required
required

9.Disclosure
Disclosure of events occurring after the balance sheet date requires the following information should be
provided:
(a) The nature of the event;
(b) An estimate of the financial effect, or a statement that such an estimate cannot be made.

Illustrative Case Studies

1.A major fire has damaged assets in the factory of X and company 18 days after the year end closing of
accounts. The loss is estimated to be Rs.16 crores after estimating the recoverable amount of Rs.24 crores
from the insurance company.
AS 4 Events occurring after the Date of Balance Sheet 35
Explain, how the loss should be treated in the final accounts
Response: It is a case of an event taking place after the after preparation of Balance sheet regarding which no
clue or condition was existing on the Balance Sheet date.
Thus loss of 16 crores should be disclosed by way note to the accounts
2.An earthquake destroyed a major warehouse of a Company on 20.5.2014. The accounting year of the
company ended on 31.3.2014. The accounts were approved on 30.6.2014. The loss from the earthquake is
estimated at Rs. 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.
Response:
Case falls within the parameters of AS-4.
It is a case of an event taking place after the preparation of Balance sheet regarding which no clue or
condition was existing on the Balance Sheet date.
Thus loss of 30 crores should be disclosed by way note to the accounts.
Since loss is major one and if it is felt by the company that it could affect the existence of the company then it
must also be disclosed.
3.A company entered into an agreement to sell its immovable property to another company for 35 lakhs. The
property was shown in the balance sheet at Rs. 7 lakhs. The agreement to sell was concluded on 15th
February, 2019 and sale deed was registered on 30. April, 2019. The financial statements for the year 2018-19
were approved by the Board on 12th May, 2019.
You are required to state, how this transaction would be dealt with in the financial statements for the year
ended 31.3.2019.
Response: Case falls within the vicinity of AS-4
It is a case of an event taking place after the preparation of Balance sheet regarding which clue or condition
existed on the Balance Sheet date.
Agreement took place before the B/S date and Registration of the sale deed after the B/S date and it provides
additional information relating to the conditions existing at the B/S date therefore adjustment to assets for sale
of immovable property is necessary in the financial statements for the period.
4.One of the manufacturing unit of B limited got destroyed in a fire for which there was no cover. The chief
accountant contends that since event has taken place after the balance sheet date therefore there is no need to
disclose the fact. Do you agree?
Response: It is a case of an event taking place after the after preparation of Balance sheet regarding which no
clue or condition was existing on the Balance Sheet date.
Thus loss should be disclosed.
5.Dividend at the rate of 20 per cent was proposed by X limited after the preparation of final accounts.
Describe how it will be dealt in the final accounts.
Response: Case falls within the parameters of AS-4.
There are some business decisions which are taken only after the preparation of final accounts. Proposed
dividend decision is one among them.
Effects of such decisions must be incorporated in the financial statements of the period.
However as per Company Act 2013, Proposed dividend should not be treated as a liability and should be
disclosed by way notes.
6.Tricks India limited could not recover Rs. 10 lakhs from a debtor. The company is aware that the debtor is
in great financial difficulty. The accounts of the company were finalised for the year ended 31.3.2015 by
making a provision @ 20% of the amount due from the said debtor. The debtor became bankrupt in April,
2015 and nothing is recoverable from him. Do you advise the company to provide for the entire loss of Rs. 10
lakhs in the books of accounts for the year ended 31stMarch, 2015?
Response:
Case falls within the vicinity of AS-4
36 Events occurring after the Date of Balance Sheet AS 4
It is a case of an event taking place after the after preparation of Balance sheet regarding which clue or
condition existed on the Balance Sheet date.
Thus loss of 10 lakhs should be provided for in the books for the period.
7. Monsoon Limited detected, theft of cash of Rs. 5,00,000 by the cashier in January, 2017, only in the month
of May, 2017
Response: As per AS-4 revised, assets and liabilities should be adjusted for events occurring after the B/S
date that provide additional evidence to assist the estimation of amounts relating to conditions existing at the
B/S date.
Since the theft of cash is just additional information it should adjusted in the financial statements of the
company for the period.
8. While preparing final accounts for the year ended 31.3.2019, a company made a provision for bad and
doubtful debts @ 5 % of its total debtors. In the last week of February 2019, a debtor for Rs. 2 lacs had
suffered heavy losses due to an earthquake; the loss was not covered by any insurance policy. In April, 2019
the debtor became bankrupt. Can the company provide for the full loss arising out of insolvency of the debtor
in the final accounts for the year ended 31.3.2019?
Response: Case falls within the vicinity of AS-4
It is a case of an event taking place after the after preparation of Balance sheet regarding which clue or
condition was existing on the Balance Sheet date.
Thus loss of 2 lakhs should be provided for in the books for the period.
9. The company‟s sales tax assessment for the assessment year 2018-19 has been completed on 14th February,
2019 with a demand of Rs.2.76 crores. The company paid the entire due under protest without prejudice to its
right of appeal. The company files its appeal before the appellate authority wherein the grounds of appeal
cover tax on additions made in the assessment order for a sum of 2.10 crores. Advise.
Response;
Since the company is not appealing against the addition of Rs. 0.66 crores, the same should be provided, in its
accounts for the year ended on 31.3.2019. The amount paid under protest can be kept under the heading
„Loans and advances‟ and disclosed along with the contingent liability of Rs. 2.10 crore.
10. A company closed its accounts on 30.6.2019 and the accounts for that period were considered and
approved by the Board of directors on 20.08.2019. The company was engaged in laying pipeline for an oil
company, deep beneath the earth. While doing the boring work on 1.09.2019, it had to confront a rocky
surface and boring of it would cost extra 80 lakhs. You are required to state with reasons, how the event
would be dealt with in the financial statements for the year ended 30.06.2019
Response:
Event took place after the approval of accounts therefore company cannot adjust it in the financial statements
but it shall have to disclose it by way of a proper note.
Following information should be provided: (a) the nature of the event; (b) an estimate of the financial effect,
or a statement that such an estimate cannot be made.
11.
An earthquake destroyed a major warehouse of ACO Ltd. on 20.5.2019.The accounting year of the company
ended on 31.3.2019.The accounts were approved on 30.6.2019. The loss from earthquake is estimated at
Rs.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/Response: AS 4 - “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. The destruction of warehouse 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 recognised in the financial year 2018-2019.
However, according to Para 8.6 of the standard, 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
AS 4 Events occurring after the Date of Balance Sheet 37
assumption of going concern in the preparation of the financial statements. As per the information given in
the question, the earthquake has caused major destruction; therefore fundamental accounting assumption of
going concern is called upon. Hence, the fact of earthquake together with an estimated loss of Rs. 30lakhs
should be disclosed in the Report of the Directors forthe financial year 2018-2019.
12. Spice India limited could not recover an amount of Rs. 8 lakhs from a debtor. The company is aware that
the debtor is in great difficulty. The accounts of the company for the year ended 31-3-2019 were finalised by
making a provision @ 25% of the amount due to debtor. In May 2019, the debtor became bankrupt and
nothing is recoverable from him. Do you advise the company to provide for the entire loss of Rs. 8 lakhs in
the books of accounts for the year ended 31-3-2019?
Response: Case falls within the vicinity of AS-4
It is a case of an event taking place after the after preparation of Balance sheet regarding whichclue or
condition was existing on the Balance Sheet date.
Thus loss of 8 lakhs should be provided for in the books for the period.
13.The company invested Rs. 50 lakhs in April, 2014 in the acquisition of another company doing similar
business, the negotiations for which had started during the current financial year. How will you deal with the
financial statements for the year ended 31, March 2014?
Response: Case falls within the vicinity of AS-4
It is a case of an event taking place after the after preparation of Balance sheet regarding which no clue or
condition was existing on the Balance Sheet date.
Thus Investments in April, 2014 in the acquisition of another company should be disclosed in the Report of
the Board of the Directors.
14. Cashier of A-One Limited embezzled cash amounting to Rs.6,00,000 during March, 2012. However same
comes to the notice of company management during April, 2012 only. Financial statements of the company is
not yet approved by the Board of Directors of the company. With the help of provisions of AS 4
“Contingencies and Events Occurring after the Balance Sheet Date” decide, whether the embezzlement of
cash should be adjusted in the books of accounts for the year ending March, 2012?
What will be your reply, if embezzlement of cash comes to the notice of company management only after
approval of financial statements by the Board of Directors of the company?
Response (a): As per AS-4 revised, assets and liabilities should be adjusted for events occurring after the B/S
date that provide additional evidence to assist the estimation of amounts relating to conditions existing at the
B/S date.
Since the theft of cash is just additional information it should adjusted in the financial statements of the
company for the period.
Response (b): If embezzlement of cash comes to the notice of the company only after approval of financial
statements by BOD, then the treatment shall be done as per AS-5 in which case it will be considered as a
Prior Period item. As per AS-5 Prior Period Items should be presented in the P&L a/c in such a manner that
its impact on current profits or loss can be easily perceived.
15. The company‟s sales tax assessment for the assessment year 2012-13 has been completed on 14th
February, 2015 with a demand of Rs. 5.40 crores. The company paid the entire due under protest without
prejudice to its right of appeal. The company files its appeal before the appellate authority wherein the
grounds of appeal cover tax on additions made in the assessment order for a sum of 3.70 crores. Advise.
Response: Since the company is not appealing against the addition of Rs. 1.70 (5.40-3.70) crores, the same
should be provided, in its accounts for the year ended on 31.3.2011. The amount paid under protest can be
kept under the heading „Loans and advances‟ and disclosed along with the contingent liability of Rs. 3.70
crore.
16. The board of directors of M/s. New Graphics limited in its board Meeting held on 18th April, 2017,
considered and approved the Audited financial results along with Auditors Report for the Financial Year
ended 31.03.2017 and recommended a dividend of Rs. 2 per equity share (on 2 crore fully paid equity shares
of Rs. 10 each) for the year ended 31.03.2017 and if approved by the members at the forthcoming Annual
General Meeting of the company on 18th June, 2017,the same will be paid to all eligible equity share-holders.
38 Events occurring after the Date of Balance Sheet AS 4
Discuss the accounting treatment and presentation of the said proposed dividend in the annual accounts of the
company for the year ended 31.03.2017 as per applicable Accounting Standard and other Statutory
Requirements.
Response: There are events which, although they take place after the balance sheet date, are sometimes
reflected in the financial statements because of statutory requirements or because of their special nature.
Such items include the amount of dividend proposed or declared by the enterprise after the balance sheet date
in respect of the period covered by the financial statements.
As per amendments in AS -4 vide Companies Accounting Standard Rules, 2016 the dividends declared after
the balance sheet date but before approval of financial statements are not recognised as a liability at the
balance sheet date because no statutory obligation exists at that time. hence such dividends are disclosed in
the notes to financial statements.
Accordingly dividend of Rs. 4 crores shall not be accounted for in the books for the year 16-17 rather shall be
reflected by notes.