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Interest on Gratuity Scheme A/c ing

Vipul Acharya (Account Officer) (639 Points)

03 June 2021

Dear Sir,

We have taken a gratuity scheme from LIC first time, in Jan-21 and paid 65 Lacs Rs. and in the c/d statement they have given us 80000 Rs. interest on that amount as on 31.3.2021

I have not created any gratuity fund, whole 65 Lacs booked in expense

Now where to show the Interest earned in books

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9 Replies

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 03 June 2021

This is your personal books I guess.

Taxable investment a/c

To Gratuity expense a/c

derecognised expense and recognised asset

Bank a/c

To Interest income a/c

interest received and put into bank.

Vipul Acharya (Account Officer) (639 Points)
Replied 03 June 2021

This is Pvt Ltd co books

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 03 June 2021

Ok fine, the same thing is applicable to this as well. First, rectify the error, then record interest transaction.

Ajay Kumar (Account Supervisor) (129 Points)
Replied 04 June 2021

First rectify entry and create LIC Gratuity fund under grauity payable with rs 65 lacs
Dr lic gratuity fund
cr expenses you earlier created
than increase lic fund with interest amount and cr gratuity payable account as you have created provision of actual gratuity as per acturial

Vipul Acharya (Account Officer) (639 Points)
Replied 04 June 2021

There is no acturial, do we need to have acturial report

Ajay Kumar (Account Supervisor) (129 Points)
Replied 04 June 2021

Yes as you have to prepare balance sheet as per ibd as or AS whatever applicaple

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 04 June 2021

Accounting entries in the books of the trust will be –

Sr. No.	Transaction	Accounting Entry	Dr./Cr.
1.	Receiving contribution	Bank A/c	Dr.
		To, Gratuity Fund – contribution received A/c	Cr.
2.	Investment entries	Investment A/c	Dr.
		To, Bank A/c	Cr.
3.	Income from Investment	Accrued Income / Bank A/c	Dr.
		To, Income from Investment A/c	Cr.
4.	Gratuity payment on retirement / separation	Gratuity Settlement A/c	Dr.
		To, Bank A/c

For accounting purposes, employer have to pass the below mentioned entries in their books of accounts:

Sr. No.	Transaction	Accounting Entry	Dr./Cr.
1.	Making contribution	Plan Asset A/c	Dr.
		To, Bank A/c	Cr.
2.	Year-end entry based on actuary report	Plan Asset A/c (Closing Balance – Opening Balance – Contribution)	Dr.
		Expense A/c (Current service cost + Interest cost – Expected return on plan asset)	Dr./Cr.
		Other comprehensive income (Net of actuarial gain/(loss) on obligation and plan asset)	Dr./Cr.
		To, Defined Benefit Obligation (Closing Balance – Opening Balance)	Cr.