Gratuity accounting

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Arun kumar (Querist)
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10 March 2016 Kindly explain the accounting entries
1.when a company has set up a gratuity fund and paying LIC premium yearly.
2.Should a provision for gratuity be made ? If yes what shall be the entry ?
3.Should the Gratuity fund be shown in the Balance sheet ?
4.Should a designated bank account be opened to route the payment towards LIC, should it be shown in balance sheet ?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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10 March 2016 1 create provision based on actuarial valuation a every year end. Debit provision and make payment to LIC.
2 credit gratuity provision and debit gratuity expenses.
3 Not required to be shown.
4 Designated bank AC to be opened for routing the funds this AC to be shown in bs.

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Arun kumar

Arun kumar (Querist)
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10 March 2016 Dear Sir

Very thankful for your reply ,Can you kindly give some nominal figures with journal entries and explain its reflection in the Balance sheet to the following
What if the company has a gratuity fund Trust account ?
1.Gratuity fund Trust ac
2. Provision for gratuity ac
3. Gratuity expense ac
4.Designated bank ac

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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11 March 2016 1 Gratuity fund trust AC will not appear in the company's books separate books and bank account has to be maintained by trust.
2 Provision for gratuity (expenses). Dr
To gratuity provision (liability). Cr
Designated bank AC may with the trust if it is so it will not appear in the bs of the company.

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Arun kumar

Arun kumar (Querist)
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14 March 2016 Dear sir

Very thankful for your reply. Kindly clarify my following doubts as well.

1.There is a Gratuity fund trust amounting to Rs 5001, for which an account in Canara bank had been opened with Rs 5001 in the year 1999. Interest accumulations have happened over the years. What should be the treatment for the interest accumulated?
2.Should it be accounted in the company books ?
3.Here, in a company the gratuity fund trust account , concerned bank ac and its interest have been accounted in the company's books itself . Is the treatment right?
4. What is the procedure for opening of a Gratuity fund trust ac and its designated bank ac?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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16 March 2016 1 Treat it as income of the trust.
2 not to be accounted in the company's books.
3 No it should only accounted in the trust books.
4 Form a gratuity trust apply for approval from income tax and open bank accounts.

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Arun kumar

Arun kumar (Querist)
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16 March 2016 Dear sir

Is the designated bank account to be used only for accepting of claim amount and its disbursement to its employees ?
What is the initial accounting entry for opening of gratuity fund trust ac ? should the designated bank ac be debited ?

Regards
Arun

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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16 March 2016 Yes the designated account to be used by the trust.
Gratuity provision (liability) AC may be debited and bank AC credited for a nominal amount given to the trust for opening bank ac.

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Arun kumar

Arun kumar (Querist)
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17 March 2016 Dear sir

What will be the opening entry of gratuity fund trust ac in the books of the trust?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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17 March 2016 Bank AC Dr
To gratuity fund AC cr
(On receipt of cheque for opening bank AC.)

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