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Accounting Standard 4: Contingencies and Events Occurring after the Balance Sheet Date

Accounting Standard 4: Contingencies and Events Occurring after the Balance Sheet Date A contingency is a condition or situation the ultimate outcome of which will be known or determined only on the occurrence or non-occurrence of uncertain future event/s. 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. Amount of a contingent loss should be provided for by a charge in P & L A/c if it is probable that future events will confirm that an asset has been impaired or a liability has been incurred as at the balance sheet date and a reasonable estimate of the amount of the loss can be made. Existence of contingent loss should be disclosed if above conditions are not met, unless the possibility of loss is remote. Contingent Gains if any, not to be recognised in the financial statements. Material change in the position due to subsequent events be accounted or disclosed. Proposed or declared dividend for the period should be adjusted. Material event occurring after balance sheet date affecting the going concern assumption and financial position be appropriately dealt with in the accounts. Contingencies or events occurring after the balance sheet date and the estimate of the financial effect of the same should be disclosed.Note: The underlined paras/words have been withdrawn on issuance of AS 29 effective for accounting periods commencing on or after 1-4-2004 .

Contigencies and Events occuring after the balance sheet date: In preparing financial statement of a particular enterprise, accounting is done by following accrual basis of accounting and prudent accounting policies to calculate the profit or loss for the year and to recognize assets and liabilities in balance sheet. While following the prudent

accounting policies, the provision is made for all known liabilities and losses even for those liabilities / events, which are probable. Professional judgement is required to classify the likehood of the future events occuring and, therefore, the question of contingencies and their accounting arises.

Objective of this standard is to prescribe the accounting of contigencies and the events, which take place after the balance sheet date but before approval of balance sheet by Board of Directors. The Accounting Standard deals with Contingencies and Events occuring after the balance sheet date.