Gratuity an leave enchasment

[Bijay Shrestha]

Dear Friends, Please suggest.

A company is accounting for Provsion for Gratuity & Leave Encashment for first time as per Acturial Valuation. Figure are like this:

Obligations at period beginning 3,408,094

Service Cost 651,617

Interest on Defined benefit obligation 316,757

Benefits settled -

Actuarial (gain)/loss 458,213

Present value of Obligation at the year en 48,34,681

Now how to account these in the books?

i) Either whole amount is charged in PL Account and credited to Provision and disallowed whole amount in IT computation? OR

ii) Op. Balance adjust against Opening balance of Reserve and surplus and balance amount charged to PL account and credit whole amount to provision and disallow whole amount to IT computation?

Please kindly suggest.

[Ganeshan Kalyani]

I agree with Sri Mariappan sir.

[Guest]

Liability related till previous year should be offered and added to total income at the time of computation of total income.

If have any other view, please confirm.

Regards,

Praveen Bansal

AI Summary

Provision for gratuity and leave encashment: liabilities attributable to prior periods must be offered in taxable income on recognition. Whether the full actuarial provision for gratuity and leave encashment recognised for the first time should be charged to profit and loss and disallowed for tax, or whether opening provision should be adjusted against reserves with only the balance charged to profit and loss. Respondents advise that liabilities attributable to earlier periods should be offered and included in total income when computing taxable income, so past-period obligations are brought into income on recognition.