Gratuity entries

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This query is : Resolved

Guest

Guest (Querist)

17 July 2012 Dear All,

If on 31/03 we made a provision of Rs. 3,00,000 based on actuary report, we will pass following entry in books of account.

Gratuity A/c Dr. 3,00,000
to Provision for Gratuity 3,00,000

now, suppose we need to make payment of Rs.8,00,000 towards gratuity, what entry we will pas?????

Sanjay Chauhan (IFRS)

Sanjay Chauhan (IFRS) (Expert)
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17 July 2012 It means that there was a short fall in provision.

Excess payment over provision will be debited to Gratutuity expense in the year of payment.

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CA BHARATH KUMAR

CA BHARATH KUMAR (Expert)
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17 July 2012 5 lakh provission should made on 1st appril

Guest

Guest (Querist)

17 July 2012 Dear Mr. Sanjay,

If in earlier years company has not debited the gratuity expenses than whether is is possible to debi the same in the current year????

Whether it will be allowable expenses in Income Tax Act??????

Sanjay Chauhan (IFRS)

Sanjay Chauhan (IFRS) (Expert)
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17 July 2012 FIrst of all, if the provision was made as per actuarial assumption, then there should not be such a big shortfall.

Is the gratuity funded or non funded?

If it is not funded, then there is no expense, the entity should debit the gratuity laibility and reduce the payment.

As far as Income tax is concerned, it should not be an issue untill auditors call it a prior period payment. Moreoever, under Tax, Gratuity is allowed on payment basis under section 43 B. Thus whatever payment made will be allowable in the yera of payment. Provisions are always discallowed.

Regards,
SC

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Guest

Guest (Querist)

18 July 2012 Thanks Mr. Sanjay

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