02 June 2011
how the provision for the gratuity and leave encashment shuold be created in the accounts ??... how it should be adjusted while calculating defferred tax liablity or asset ??... i am aduiting a public limited company they have adjusted opening balance with current year actual provision is this accounting treatment correct??
The provision for gratuity and leave encashment are allowed only when it is actually paid(refer 43B) so it is a timing difference. Generally what happenes when a company provide for Gratuity of leave encashments it is generally added back while calculating the Income Tax liability and the amount which is actaully paid during the year is allowed.
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