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.

AI Summary

Company Debates Gratuity and Leave Encashment Accounting: Charge to Profit & Loss or Adjust Reserves? A company is implementing the accounting of Provision for Gratuity and Leave Encashment for the first time based on Actuarial Valuation. The financial figures include obligations at the beginning of the period, service cost, interest on defined benefit obligation, and actuarial gains or losses. The query seeks advice on whether to charge the entire amount to the Profit and Loss Account and credit it to Provision, disallowing it in the income tax computation, or to adjust the opening balance against reserves and surplus, charging the balance to the Profit and Loss Account. Responses suggest adding liability from the previous year to total income during computation.