ACCOUNTING STANDARD - 4 CONTINGENCIES AND EVENTS OCCURING AFTER BALANCE SHEET DATE
Applicability of Accounting Standard
- 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
- 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)
ACCOUNTING TREATMENT OF CONTINGENT LOSSES
- IF CONTINGENT LOSS LIKELY, PROVIDE FOR THE LOSS IN FINANCIAL STATEMENTS.
- 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.
- 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
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.
- 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.
- 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.)
- Certain events taking place after the balance sheet date are reflected in financial statements because of statutory requirements.
- Events that may indicate that the enterprise ceases to be a going concern requires a proper 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:-
- An estimate of their financial effects or a statement that such estimates can not be made.
THANK YOU SOURCES: ACCOUNTING STANDARDS; D.S. RAWAT ACCOUNTING STANDARDS; S BHATTACHARYA ICMR TEXT BOOK WWW.ICAI.ORG