Case: The financial statements of Godavari Fabrics Ltd for the year ended 31 March are approved by the board on 20 May. On 25 April, a major customer whose balance was outstanding at 31 March was declared insolvent; the customer's financial difficulties had existed since February. Under AS 4, this event is:

Correct answer: C) An adjusting event, requiring a provision against the receivable as at 31 March

Explanation

Events after the balance sheet date that provide additional evidence of conditions existing at the balance sheet date are adjusting events under AS 4. The customer's insolvency confirms that the receivable was impaired at 31 March, so the amounts recognised must be adjusted. It is not a prior period item, since there was no error.