Computation of book profit for companies

Company can claim the Leave encashment paid or payable to employees while computing the Book Profit.

There is no clarity in your quiery regarding whether provision of EL is done in year end? or the actual payment is done in next financial year.

If the provision for EL and actual payment happened in same year, U can claim actual payment of EL of Rs. 120000/- for computing Book profit.

If the provision for EL made in previous year and actual payment happened in next FY, the provision of Rs.100000/- only be taken in Book profit.

hi,

Thanks for the quick response...

Another issue is whether same can be allowed for computing taxable profit considering provisions of sec 43B...

The actual situation ABC company had made provision for leave encashment made in its books of account.  The same provision was then transferred to its group companies as the employees were shifted from the payroll of ABC Company to those of group companies.

Now when the group company is making payment of leave encashment to the employees the provision is in short as compared to actual payment made.

Can the group company claim the actual amount paid even though it has not been debited to profit & loss A/c?

Provision trf from ABC Company - Rs. 100000

Actual Payment made by group company - Rs 120000

Can the company claim additional amount of Rs. 20000 when the same has not been debited to P&L and under which section?

Pls reply urgently.

Thanks

Mention the year /date of Provisiona and year/date of actual payment

Year of provision - F.Y 2010-11

Year of Payment - F.Y 2012-13

Amount of Provision - Approx Rs. 500000

Amount of Payment - Rs. 1320000

As the actual payment made in FY 2012-13 against the provision made in FY 2010-11, for the caclulation of book profit - whatever amount debited in Leave encashment shown in P&L Account  can be claimed. 

Provision for EL will nullify after actual payment therefore actual payment prevails.

ok Thanks.

But what will be the treatment for the balance amount....i.e. diffrerence between actual amount paid and provision made.

Will this be allowed for computing taxable profit.

Pls reply urgently

The entry should be:

1) Provision for Leave Encashment...Dr   500000

       To Leave encashment                                           500000

(Reversal of provison for Leave encashment made in FY 2010-11 )

2) Leave encashment .. Dr                          1320000

  To. Bank account                                                          1320000

(Actual leave encashment payable against Provision done on FY2010-11 )

Therefore only balance amount of Rs.832000 (1320000-500000) will be considered in Book profit in FY 2012-13 as Rs.500000/- has been already considered in FY 2010-11)

thanks a lot...thank you so much....