Accounting of gratuity

This query is : Resolved

Sugata Priyadarsini (Querist)
Follow

28 December 2013 A Govt. company is having gratuity plan with LIC since 1992. The benefit that the employees are provided on account of gratuity is @15 days salary for every completed year limited to maximum of Rs.3,50,000.00. Whenever the payment of Gratuity arises to any employee, LIC credits the amount to the Company and the Company pays the amount to the employee.
Company has been paying the contribution every year as demanded by LIC and books the same as expenditure. Other than this no liability or planned asset is being shown in the books of the Company.
After the non compliance being reported by the statutory auditors, they have obtained a Gratuity report under AS -15 for the year ended 31.03.2012 from LIC. Now for the year ended 31.03.2012 they want to pass the entry in compliance with AS 15. The books of accounts for the year 2011-12 are not closed yet. The report obtained from LIC is as detailed below. Kindly advise what entry has to be passed and whether entries should be passed on the basis of the report obtained from LIC, or any other actuarial valuation is required.
1. Assumption as on 31/03/2011 as on 31/03/2012
Discount Rate 8.00% 8.00%
Salary Escalation 7.00% 7.00%

2. Table showing Changes in Present value of obligation as on 31/03/2012
Present Value of obligations as at the beginning of year 34374452.00
Interest Cost 2749956.00
Current Service Cost 1295640.00
Benefits paid (1988514.00)
Acturial (gain)/ loss on obligation (3178712.00)
Present value of obligations as at the end of the year 33252822.00

3 Table showing changes in the fair value of plan assets as on 31/03/2012
Fair Value of plan assets at beginning of year 18322660.00
Expected return on plan assets 1747545.00
Contributions 5949769.00
Benefits Paid (1988514.00)
Fair Value of Plan Assets at the end of year 24031460.00

4 Table showing fair value of plan assets
Fair Value of plan assets at beginning of year 18322660.00
Actual return on plan assets 1747545.00
Contributions 5949769.00
Benefits Paid (1988514.00)
Fair Value of Plan Assets at the end of year 24031460.00
Funded Status (9221362.00)
Excess of Actual over estimated return on plan assets NIL
Actual rate of return = Estimated rate of return as ARD falls on 31st March

5 Actuarial Gain/ Loss recognized As on 31.03.2012
Actuarial (gain)/ loss on obligation 3187712.00
Actuarial (gain)/ loss for the year – plan assets NIL
Total (gain)/ loss for the year (3178712.00)
Actuarial (gain)/ loss recognized in the year (3178712.00)

6. The amounts to be recognized in the balance sheet and statements of profit and loss
Present value of obligation as at the end of year 33252822.00
Fair value of plan assets as at the end of the year 24031460.00
Funded Status (9221362.00)
Net asset/ (liability) recognized in balance sheet (9221362.00)

7. Expenses Recognised in statement of profit and loss
Current service cost 1295640.00
Interest Cost 2749956.00
Expected return on plan assets (1747545.00)
Net actuarial (gain)/ loss recognized in the year (3178712.00)
Expenses recognized in statement of profit and loss (880661.00)

Note: The above report is not certification under AS-15 revised 2005 read with Actuaries Act, 2006. It is simply a report generated to help companies for proper accounting of employee liabilities

In the year 2011-12 Rs. 60,00,000.00 was demanded by the LIC and paid by the Company has been booked as expenditure.
If net liability of Rs.92.21lakhs has to be shown then which account will be debited because the company will show the liability for the first time in its books?
If 8.80 lakhs is the expenditure then what accounting entry is to be passed?
What accounting entry is to be passed for the contribution of Rs.60.00 lakhs.