Accounting Policies

Save Share

This query is : Resolved

mayank Nanavati (Querist)

19 March 2010 can anyone tell me when one follows method of "paing as you Go" in case of Leave encashment which against the Accrual Policy and also against AS 15 " treatment of retirement benefits" whether one can follow such policy and disclose the fact that such policy has been followed in the preparation of financial statement or one should not a policy against fundamental accounting assumption, accrual in this case, as the standard provides for disclosure of fact only if fundamental accounting assumption are not followed. please clarify

shakuntala chhangani

shakuntala chhangani (Expert)

21 March 2010 Hi Mayank, in case of pay as you go, leave salary is not provided for in the accounts. it is shown as an exp only when it is paid at the time of retirement or resignation as the case may be. However, leave salary is paid for the period of past service. It means every year as the employee provides services, he becomes entitled to leave salary. so leave salary is the period cost. And it should be recognised in the period in which it accrues (i.e. when the services are provided) and not when it is paid. Hence pay as you go does not consider the Accrual basis which is the fundamental accounting assumption which if not followed must be disclosed. The same issue has been taken care of in AS 15 (Revised).
Regards, CA Shakuntala Chhangani

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now