Accounting Standard 4

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Accounting Standard 4

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

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