Treatment of salary paid by group co.

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

20 August 2011 Initally Salary of employees of A (new)co. is paid by B co., which is a group co. but not subsidiary or holding co.
in B co.s a/cs, A............DR.1000
To PF 10
To PT 10
To Mr.Q. 80
Mr.Q ........DR.80
To Bank. 80
, entry is passed.
What should be the entry in A Co. ?
Mr. Q is working for A.co. but intially on pay roll of B.co.

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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25 August 2011 You need to debit salary account and credit company B a/c

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Querist : Anonymous

Querist : Anonymous (Querist)

27 August 2011 By what Amount?
And initally pf pt is deducted by B Co. so how to show salary in B a/c. becoz if salary is debited then liability to deduct will be of A but actually salary is deducted by B co.

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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28 August 2011 Total salary & PF amount need to be taken for entry,

the entry passed in B Company related to pf/PT need to be transfer to A and pay from there

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CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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27 September 2011 I believe the A co. should pass the following entry

Salry A/c DR 100
To PF 10
To PT 10
To A Co. 80

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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27 September 2011 ther is no requirement of transfer of PF & PT to A co as it's employee deduction and is in the nature of the liabilty of teh co which can be discharged from B CO. Employer's contribution need to be transferred mandatorily

Querist : Anonymous

Querist : Anonymous (Querist)

12 October 2011 how can A co, credit by its own name in its book?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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02 August 2025 This is a classic case of **salary expenses paid by one group company (B Co.) on behalf of another group company (A Co.)**, where the employee actually works for A Co.

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### Treatment summary and accounting entries:

#### In **B Co.’s books** (the company making the payment):

* B Co. records the salary payment as a **reimbursement receivable** from A Co. because employees belong to A Co.
* Entries in B Co. will typically be:

```
Salary Expense A/c (or Advances to A Co.) Dr. 100 (Total Salary)
To Bank/Cash 80 (Net salary paid to employee)
To PF Payable 10 (Employee’s PF deduction)
To PT Payable 10 (Employee’s PT deduction)
```

* Or, if B Co. uses an inter-company account:

```
Due from A Co. Dr. 100
To Bank/Cash 80
To PF Payable 10
To PT Payable 10
```

This shows B Co. paid Rs.100 on behalf of A Co. and expects reimbursement.

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#### In **A Co.’s books** (the company where employee works and salary expense belongs):

* A Co. must **recognize the salary expense** (gross amount) and the corresponding liability to B Co. for reimbursement.
* Employee deductions (PF, PT) are liabilities of A Co., so even if B Co. physically deducted and paid, A Co. must show it.

The entries will be:

```
Salary Expense Dr. 100
To PF Payable 10
To PT Payable 10
To Due to B Co. 80
```

* This means salary expense is Rs. 100, and net Rs. 80 is payable to B Co. (since B Co. has paid net salary to employee), and Rs. 20 (PF + PT) remains payable by A Co.

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### Important points:

* **Employer's contribution to PF and other statutory liabilities** (like employer’s PF contribution, ESI, etc.) are the responsibility of A Co. and should be accounted for separately by A Co.
* Even though B Co. physically deducts employee contributions and pays the salary, A Co. is the **principal employer** and must show these liabilities in its books.
* A Co. should **reimburse B Co. for the net salary paid** and any employer’s statutory contributions paid by B Co. on its behalf.
* No "crediting salary to itself" in A Co.; salary is an expense and must be debited, liabilities recognized separately.

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### In brief:

| Company | Debit | Credit | Explanation |
| --------- | ------------------------------- | --------------------------------------------- | ------------------------------------------------------------------ |
| **B Co.** | Due from A Co. / Salary A/c 100 | Bank 80, PF Payable 10, PT Payable 10 | Paid salary & deducted liabilities on behalf of A Co. |
| **A Co.** | Salary Expense 100 | PF Payable 10, PT Payable 10, Due to B Co. 80 | Recognize salary expense, liabilities, and amount payable to B Co. |

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If you want, I can help you prepare sample journal vouchers or explain statutory treatment in more detail. Would you like that?

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