Treatment as per AS 4

Great question about Accounting Standard (AS) 4 — Contingencies and Events Occurring After the Balance Sheet Date!

Here’s how the scenario you described would be treated under AS 4:

Facts Recap:

Company had an NPA loan of Rs. 5 crores.
Bank gave OTS at Rs. 4 crores with a deadline in April 2024 (after FY 23-24 end).
Company paid 50% in FY 23-24 and the rest in June 2024 (FY 24-25) after a 90-day extension.

AS 4 Treatment:

Balance Sheet Date:
The balance sheet is as at 31st March 2024 (end of FY 23-24).
Nature of Event:
The event (payment of full OTS amount) happened after the balance sheet date but before the financial statements are approved.
Type of Event (AS 4):
AS 4 distinguishes between:
- Adjusting events: Events that provide additional evidence about conditions existing at the balance sheet date.
- Non-adjusting events: Events that indicate conditions that arose after the balance sheet date.
Analysis:
- The original loan was classified as NPA as of 31st March 2024.
- The OTS agreement and payments relate to existing liabilities (the loan).
- The partial payment before balance sheet date indicates part settlement.
- The final settlement agreement extension and payment completed after balance sheet date is a non-adjusting event because it happened after March 31, 2024.
- However, if the terms of settlement were finalized before the balance sheet date (say the OTS was agreed before March 31, 2024), it may be an adjusting event.
Accounting Treatment:
- If OTS terms were finalized before balance sheet date:
  Adjust the loan liability in FY 23-24 financials to Rs. 4 crores (settlement amount). Recognize any difference (1 crore) as expense or gain as applicable.
- If OTS terms were finalized after balance sheet date:
  No adjustment in FY 23-24 financials. Disclose the settlement details as a non-adjusting event in the notes to accounts. Reflect the full amount (5 crores) as liability as on 31st March 2024.