Accounting Standard 4
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  • 1. ACCOUNTING STANDARD - 4 CONTINGENCIES AND EVENTS OCCURING AFTER BALANCE SHEET DATE
  • 2. Applicability of Accounting Standard
    • AS-4 DEALS WITH –
    • CONTINGENCIES
    • EVENTS OCCURING AFTER BALANCE SHEET DATE
    • AS-4 DOES NOT APPLY IN FOLLOWING CASES –
    • Liabilities of life assurance and general life insurance enterprises
    • Obligations under retirement benefit plans
    • Commitments arising from long-term lease contracts
  • 3. CONTINGENCIES
    • 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.
    • Result is not known on the date balance sheet
    • Estimation of outcome of contingency is determined by management.
    • The fact that an estimate involved-does not make it a contingency. (E.g. Depreciation not a contingency)
  • 4. ACCOUNTING TREATMENT OF CONTINGENT LOSSES
    • IF CONTINGENT LOSS LIKELY, PROVIDE FOR THE LOSS IN FINANCIAL STATEMENTS.
    • ILLUSTRATION –
    • A company has filed a legal suit against the debtor from whom Rs.15 lakhs is recoverable as on 31/3/04. The chances of recovery of legal suit are not good as per legal opinion.
    • As per AS-4 company should make a provision for doubtful debts.
  • 5.
    • Third party counter claim to be adjusted
    • IN CASE OF INSUFFICIENT EVIDENCE FOR ESTIMATION OF CONTINGENT LOSS, MAKE DISCLOSURE.
    • IF CONTINGENT LOSS IS REMOTE, IGNORE IT.
    • Discounting of Bills of Exchange
  • 6. EVENTS OCCURING AFTER BALANCE SHEET DATE
    • Events which occur between the balance sheet date and the date of approval of financial statements by competent authority.
    • Two types of EVENTS:-
    • Those which provide further evidence of conditions that existed at the balance sheet date.
    • Those which are indicative of conditions that arose subsequent to the balance sheet date.
  • 7. Accounting Treatment
    • Adjustments are required if we get additional information which can materially affect the amounts relating to conditions existing at balance sheet date.
    • (Insolvency confirmation after the balance sheet date)
    • NO adjustment is required if the event does not relate to the conditions existing at the balance sheet date.
    • (Decline in value of investments)
    • Events which do not effect the figures of financial statements but can significantly influence decision making must be disclosed in report of approving authority.
    • (Information on new projects etc.)
  • 8. Contd…..
    • Certain events taking place after the balance sheet date are reflected in financial statements because of statutory requirements.
    • (Proposed dividend)
    • Events that may indicate that the enterprise ceases to be a going concern requires a proper disclosure.
    • ( Due to fire)
  • 9. DISCLOSURE
    • Disclosure is required only in respect of those events which materially affect the financial position.
    • Disclosure of events in the report of approving authority should comprise of the following information:-
      • Nature of the event
      • An estimate of their financial effects or a statement that such estimates can not be made.
  • 10. THANK YOU SOURCES: ACCOUNTING STANDARDS; D.S. RAWAT ACCOUNTING STANDARDS; S BHATTACHARYA ICMR TEXT BOOK WWW.ICAI.ORG