CA Devender Chauhan (Group Financial Accountant) (1526 Points)
16 August 2011What will be the accounting entries in case we have maintain the fund for gratuity liability.
We have taken a policy from LIC & make yearly payments to them of the provision amount (as per acturian valuation which is being done by LIC).
Plz expain all the accounting enteries to be made for this.
U S Sharma
(glidor@gmail.com)
(21063 Points)
Replied 16 August 2011
at the time of payment to LIC
Graduity fund a/c dr to
cash/bank a/c
at the time of credit of interest to fund by LIC
Interest on graduity fund dr to
Graduity fund
at the time of discharge of any graduity in actual
Grauduity a/c dr
to Graduity fund a/c
U S Sharma
(glidor@gmail.com)
(21063 Points)
Replied 16 August 2011
usually at the time of opening of such superannuation account
a trust is formed with the employer and nominated employees of unit
under this circumstance the trust gets diff identity from employer
under this situation
graduity fund a/c dr
to cash bank a/c
the only entry should be passed, as the interst towards the trust is tax free, and at the time of discharge of graduity of any employee LIC will recalculate the liability after discharge and will claim the excess contribution
CA Devender Chauhan
(Group Financial Accountant)
(1526 Points)
Replied 16 August 2011
Sir,
but do we also need to create provision for gratuity as per AS-15 for this?
U S Sharma
(glidor@gmail.com)
(21063 Points)
Replied 16 August 2011
if trust is formed then direct debit of premiums paid is allowed.
CA Devender Chauhan
(Group Financial Accountant)
(1526 Points)
Replied 16 August 2011
So u mean to say that even in case of Company the premium paid can directly debited in the books of accounts if the trust is formed.
but how the gratuity fund will reflect in the balance sheet if we debit the premium in the books.
kindly explain.
U S Sharma
(glidor@gmail.com)
(21063 Points)
Replied 17 August 2011
as the trust is separate identity , payment towards graduity fund is expenditure, and no balance has to be shown in books for assets side, its the property of trust after payment, and company has no direct relation with the funds, except that employees will get benefit of the fund.
CA Devender Chauhan
(Group Financial Accountant)
(1526 Points)
Replied 17 August 2011
Thanx Sir for solving my query...
One last thing wheather this expenditure is allowable under income tax act in the hands of the company as deduction in the year of payment to LIC or this will be allowable when the payment will made to the employee.
Also wheather the Company have the option to create the provision if they want to do so?
U S Sharma
(glidor@gmail.com)
(21063 Points)
Replied 17 August 2011
no provision required when superannuation trust is formed,
expenditure is allowed expenditure on payment basis against demand note of LIC.
Srinivasan
(GM)
(21 Points)
Replied 03 January 2012
What happens to the provisions already created? Should we reverse the transaction i.e., earlier acturial valuation provisions and account for the payment made to LIC on an actual basis as expenditure?
Shabin Jacob
(7 Points)
Replied 16 December 2017
The second entry is wrong..
The entry is,
Gratuity Fund A/c Dr.
To Interest on gratuity fund
Tikaram Chaudhary
(Founder of Gratuity Trust Fund Consultant)
(2187 Points)
Replied 25 December 2017
Benefits of Creating Group Gratuity Trust Fund
For more details on the above subject visit - https://groupgratuityfundconsultantindelhi.blogspot.in
Bhupendra Dwivedi
(2 Points)
Replied 29 February 2020
Nitin H
(Private)
(29 Points)
Replied 07 August 2022
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