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SALARY PROVISION -URGENT PLS HELP

work is worship (Service) (2728 Points)

05 July 2010

Hi. A friend of mine working in a co in India has a question..

I am working for a group of companies and the main company has several branches. The main company and the other company auditors are different. One staff working in the other company was transferred to the main company and in the same year (2009) he left the organisaion.

While keeping year end provision for Gratuity, Bonus and leave encashment, no provision was kept for this person. As the other company has not got its accounts audited so far and no provision has been kept for there also.

The salary settlement was done in 2010 ,

The amount involved is around INR 60000/-

How do we account this as this is not current year expenses.

Thanks in advance

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5 Replies

work is worship (Service) (2728 Points)
Replied 05 July 2010

Surprisingly..amongst so many Ca members,. no answer till now received.

Kindly take few minutes and give ur views..

Thanks a lot

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srinath (Article trainee) (1433 Points)
Replied 06 July 2010

hey

According to my understandin of the facts it is a group of companies and not a same company with many branches

Since the entry should ve been passed in the previous year itself it shud be treated as prior period exp as per AS-5.

entries shud be passed in the concern companies for the period for which the person has worked

this could explain better

lets assume Mr. A has worked in x ltd from apr to sep and the salary amounts to say Rs. 35000 and in y ltd from oct to jan and the salary amounts to balance Rs. 25000

the entry in the books of x ltd should be as follows

salary a/c dr. 35000

to y ltd 35000

in the books of y ltd it should be

salary a/c dr. 25000

x ltd a/c dr. 35000

to bank 60000

hope this clarifies. suggestions welcome

work is worship (Service) (2728 Points)
Replied 06 July 2010

Thanks for the reply , unfortunately NOT helpful as you have discussed on salary.

I am talking about other benefits and this is definetly prior period exps for 2 years.

I am asking on treatment of prior period exps and the accounting head to be created and entry thereoff and is any qualification requried as amount is more than INR 50,000.

shakuntala chhangani (FCA Course co-ordinator WIRC coaching centre) (2525 Points)
Replied 12 July 2010

My dear, in your question u hv mentioned that the staff was transferred from other co. to the main co. and he has left the main co. in the same year. the account are yet to be audited. It means you can still pass the entry for year end provisions. Nowhere in your question u hv mentioned that the provision is pending from last two years. In view of the facts given by you, the answer is :

In the books of other co. :

Retirement benefit A/c Dr. XX (particular name)

To provision for retirement benefit XX (upto the date of transfer to main co.)

when the same is paid by the main co. in the next following year :

Provision for retirement benefit A/c Dr. XX

To Main co. A/c XX

In the books of main co. :

Retirement benefit A/c Dr. XX (particular name)

To provision for retirement benefit XX (from the date of transfer to leaving d main co.)

when the same is paid by the main co. in the next following year :

Provision for retirement benefit A/c Dr. XX ( provision of main co)

Other Co. A/c Dr. XX (provision of other co.)

To Bank A/c XX (Total provision of main co. and other co.)

Had the accounts been audited without provision entry, only then u would hv shown it as prior period item. Since u hv sorted out the error before finalisation of a/cs, then why to show it as prior period otem. just pass the provision entry and thats all.

Regards, CA Shakuntala Chhangani

work is worship (Service) (2728 Points)
Replied 13 July 2010

Hi i have mentioned accounts is not audited for the other company, while audit is completed in the main company in which the staff was transferred last year and left the same year. No provison was made for the EOS settlement and two month salary.

This is a prior period expenses and i got assistance from other friends in this field.

According to them we need to show this expenses in current year as Prior Period expenses and it will apear in PL under the line .

Thanks