I want to know somthing about provision. Can we make provision for graduty of employees working less than 5 years in a company. Plz help me in the prob.
sivaram
(Asst Mgr-Taxation)
(6918 Points)
Replied 23 November 2009
ActurIal valuation is carried out based on that provision is made each year as per AS-15
gokul
(Accountant)
(126 Points)
Replied 23 November 2009
Please checkout the following link to answer your query
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Moreover
Provision is recognised if the following conditions are satisfied:
1. An enterprise has present obligation (i.e., the existence of obligation on the balance sheet date is considered probable - the entity has the obligation to pay gratuity for the initial period of 5 years also even though the employee is eligible to receive it only after completion of 5 years) as a result of past event (i.e., appointment of the employee in the company).
2. It is probable that an outflow of resources is required to settle the obligation (in this case it is true that the amount will be paid to the employee after completion of the prescribed period in the employment)
3. A reliable estimate of the obligation can be made( in this case the task is taken care by an Actuary).
Therefore Gratuity provision is made for whole of the company employees by an Actuary including new employees.
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