Treatment as per AS 4

Stat Audit 84 views 1 replies

Company A Private Limited had an NPA loan in FY 23-24 for which the Bank gave OTS (one-time settlement) time limit of which was supposed to end in April 2024, but the company paid a 50% portion in FY 23-24 and took extension of 90 days and paid entire loan in the month of June 2024, i.e. FY 24-25. The loan amount was Rs.5 crores, settled at Rs.4 crores. How to deal with this as per AS 4 Event occurred after the balance sheet date. 

Replies (1)

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:

  1. Balance Sheet Date:
    The balance sheet is as at 31st March 2024 (end of FY 23-24).

  2. Nature of Event:
    The event (payment of full OTS amount) happened after the balance sheet date but before the financial statements are approved.

  3. 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.

  4. 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.

  5. 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.


Summary:

Situation Treatment in FY 23-24 Financials
OTS agreed before 31-Mar-2024 Adjust loan amount to Rs.4 crores
OTS agreed after 31-Mar-2024 No adjustment; disclose event in notes (non-adjusting)


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