I agree with Kumar Babu G regarding AS 4.

Good interpretation Mr.Kumar Babu....

@ every one: thanks for your replies

Hi all,

I go with Netra mam. Fire occured in the premises after the balance sheet date which could be the reason for his insolvency.Had the fire occured before the balance sheet date , the company A would be aware of that event and the declaraion of insolvency would be an additional information and so it will be an adjusting event.

But, in this case the fire itself occured after the balance sheet date. Adding to this,Company B becomes insolvent.This is non-adjusting event. As it is material thing, a disclosure in the Directors' report is sufficient as per AS-4.

Please correct me if I am wrong.

Thanks in Advance.

It is an Adjusting Event as per AS 4. Hence the provions to be created on entire amount. Further, adequate disclosures has to be made to enable the users to understand it clearly.

Lets go step by step.

Point 1 - AS-4 covers only events occuring after balance sheet date but before the approval of financial statements. Hence all these events occur during this period, it is covered by AS-4.

Point 2 - Events covered by AS-4 date are classified into Adjusting and Non-Adjusting Events. Adjusting Events are events which are significant, provide additional information, only when the conditions of such events present on the Balance sheet date.These events are to be given effect on the Financial Statements. Since the insolvency of the debtor was not evident on the balance sheet date, it is not an Adjusting Event.

Point 3 - Non Adjusting Events require only disclosure by the Board in the report submitted to Stakeholders.

Point 4 - Exception - Where Going concern of the entity is in crisis due to that event, then the financial statements have to be adjusted to that effect and record all possible loss, i.e even though no conditions exist on balance sheet, it would reqire adjustment.

Point 5 - I assume that insolvency of one debtor is not going to affect the going concern of company A, hence the exception doesnot apply. Since there was no conditions existing on the Balance Sheet Date, it is a non-adjusting event, and it must be disclosed in Directors Report.

Please go through the attached file for any more clarifications.

Thank you :)