AS 4 and its impact in Financial Statements

This query is : Resolved

M.Ramkumar (Querist)
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29 August 2024 Dear Sir/Mam ,

Due to Floods in Dec 2023 , Stocks have been damaged which are material in value and it could not be quantified as at 31.03.2024 .These stocks are covered under insurance policy . In July 2023 , Damaged stocks could be quantified and insurance claim is receivable during August.

Can we apply AS 4 & treat it as an Adjusting Event & Adjust the Assets & Liabilities as follows
1. Add insurance claim receivable and decrease from stocks
2. Balance loss to write off in P/L account
3 can we provide disclosure accordingly

Thanks in Advance

Asha Kanta Sharma online

Asha Kanta Sharma online

(Expert)
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12 August 2025 Hey! Your query about applying AS 4 (Contingencies and Events Occurring After the Balance Sheet Date) to flood-damaged stocks and insurance claims is spot-on. Let me explain how to handle this situation according to AS 4:
Key Points of AS 4:
Adjusting events are those that provide evidence of conditions that existed at the balance sheet date.
Non-adjusting events are those indicative of conditions arising after the balance sheet date.
Adjusting events require adjustments to the financial statements, while non-adjusting events require disclosure only.
Your Scenario:
Stocks damaged due to floods in Dec 2023 (before 31.03.2024).
Damage was material but not quantified at 31.03.2024.
Quantification and insurance claim realizable happened in July/August 2024 (after balance sheet date).
Applying AS 4:
Is this an Adjusting Event?
Yes.
The damage happened before the balance sheet date, so the condition existed at 31.03.2024.
Quantification after the date only provides better evidence about the extent of loss existing at year-end.
So, this is an adjusting event.
Accounting Treatment:
Reduce stock value by the amount of damage.
Recognize insurance claim receivable as an asset (since claim is expected).
The net loss (damage minus insurance receivable) is recognized in the Profit & Loss account.
So your proposed treatment is right:
Debit Insurance Claim Receivable (Asset)
Credit Stocks (Asset)
Recognize any residual loss in P&L
Disclosure:
Yes, provide detailed disclosure in notes about:
Nature of the event (flood damage)
Amount of loss and insurance claim receivable
Timing of quantification and realization
Impact on financial statements

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