Suppose as on 31-03-2021 there is pending against the company a litigation in court regarding wage revision made 5 years ago by labour union. The company if lose the case will have to compensate employees with retrospective wage revision for last 5 years.
On 15-04-2021 company lost the case and no provision was yet made in accounts in respect of such payment as company was of the view that case will be in their favour.
Date of approval of accounts- 30-07-2021.
Query:
Applying AS 4
Should the company charge wage liability for the year 20-21 as current year exp. and for previous 4 years as prior period error as those does not pertain to the FY 20-21 ?
It is a contingent liability is applied disclosure is required in financial statements by stating the statement showing
Litigation is in process against the company and the company is able to pay its debt.
Under AS 4 current year expenses should be shown and the previous year wages should be also required to be show as contingent liability
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