Grautity Accounting in the Books of Gratuity Trust & Company

This blog is intended to highlight the accounting treatment in the books of Employer Company and Gratuity Trust. I have divided this series in two parts. The first part is intended to help the reader to understand the accounting treatment in the books of Employer Company.

Case Study

The Employer Company has decided to create a Gratuity Trust in order to manage the Gratuity liability for their employees. The main motto of the Gratuity Trust is to manage the Funds contributed by Employer Company & to pay the Gratuity Amount to the employee at the time of retirement or separation. The payment will be made out of the funds managed by Gratuity Trust. The Employer Company will periodically contribute to the Funds of Gratuity Trust, which in turn will invest in the securities as approved at the time of creation of trust.

Above arrangement is treated as “Defined Benefit Plan” under AS-15_Accouting for Retirement Benefits issued by Institute of Chartered Accountants of India.

As per AS-15, the Employer Company is required to value the Gratuity Liability from the qualified actuary.

Looking to the above discussion & for the better understanding of the reader, we can take the following example:

In a Financial Year, Employer Company has contributed Rs 100 millions to Gratuity Trust. At the end of Financial Year, the further liability calculated by qualified Actuary is Rs 25 million. The extract from Actuary Report is as follows:

Balance Sheet Recognition           (Rs in millions)
Present Value Of Obligation	125
Fair Value Of Plan Assets	-100
Liability (assets)	0
Unrecognised Past Service Cost	0
Liability (asset) recognized in the Balance Sheet	25

Accounting Entries

The accounting entries in the books of Employer-Company will be as follows:

Date	Particular	Dr/Cr	Nature of Ledger	Amount
Payment Date	Provision for Gratuity A/c	Dr	Liability	100
	Bank A/c	Cr	Asset	100
	(Toward Contribution to Gratuity Trust)
31/MAR/2XXX	Gratuity Expenses	Dr	Expense	125
	Provision for Gratuity A/c	Cr	Liability	125
	(Liability & Expense Booking As per Actuarial Valuation)

So the Gratuity Expense recognized in the books of accounts is Rs 125 million vis-a-vis Gratuity Liability as Rs 25 million. It means that the Employer Company has to still contribute Rs 25 millions to Gratuity Trust to meet the Gratuity Liability.

In case of any query, the readers can post their comment and I will try to resolve the same at the earliest.

Please follow this blog to learn the accounting treatment in the books of Gratuity Trust

Nalin Bhandari Chartered Accountant Cell:+919930018666

Cost of Living in Mumbai

Mumbai is the Financial Capital of India. Most of the Corporates have their offices at Mumbai. The City is full of energy & having fast life. This article is meant for those people who are looking to come down to Mumbai for long stay/permanent stay.

Geographies of Mumbai

Mumbai is in the western part of India & is part of Maharashtra State. City is expanded from Churchgate to Virar on Western Lines and Churchgate to Thane on Central Line. Maximum offices are located between Dadar & Churchgate. Most of the people are stay in suburban areas of Mumbai. Andheri to Virar(western line) & Ghatkopar to Thane(Central Line) are generally referred to as Suburban areas.

Climate of Mumbai

Mumbai has tropical wet & dry climate. Rainy season starts from July & end till November.

Transport

Mumbai is well connected with all means of transport system. Public transport systems in Mumbai include the Mumbai Suburban Railway, BEST buses, Metre taxis & Auto rickshaws. Each Suburban Station is attached with Bus Depot & Taxi/Autorikshaws stand.

Other Facilities

Mumbai is well equipped with all type of other facilities like School,Colleges,Hospital,Malls,24 hr electricity & water supply.

Cost of Living at Mumbai

The main chunk of expenditure goes on rent. The flats are little bit costly as compared to other parts of India. Other household expenditure are almost equal to other metro cities of India. Household expenditure is bifurcated into following heads:

Rent

 Flats are available in all sizes & ranges. The rent range is depending on the location & age of Flat. The rent per month is as follows:

Location	1 BHK	2 BHK	3 BHK
	565 Sq Ft	850 Sq Ft	1200 Sq Ft
Churchgate-Andheri/Ghatkopar	20,000-50,000	30,000-200,000	45,000-400,000
Andheri-Borivali or Ghatkopar-Thane	8,000-20,000	12,000-40,000	18,000-70,000
Beyond Borviali or Thane	5,000-8,000	8,000-12,000	12,000-15,000

Security Deposit of the Flat is generally 5-6 times of the monthly rent. Brokerage charges are equivalent to 1.5 month rent.

Electricity Charges & Water Charges

The Cost per unit of electricity is Rs 3.5/unit(upto 100 units) & there after Rs 6/unit (upto 300 units).Water charges are nominal and part of maintenance charges of Flats.

Transport

Suburban Rail Tickets (monthly pass) are available @ Rs 600 p.m for First class and Rs 200 for Second Class. Monthly Bus pass are available in the range of Rs. 200 to Rs. 1000.Minimum Bus fare for Short Distance route is Rs 4.

Minimum Fare of Auto/Taxi is Rs 11 & Rs 16 respectively for first 1.6 Km. Thereafter rate will be charged as Rs 7/Km for Auto & Rs 10/Km for Taxi. Auto & Taxi are run on the basis of Meter & fare is charge on the basis of kilometer run.

Petrol charges are in the range of Rs 65-70 per litre and diesel is available in the range of 30-35.The petrol & diesel prices are variable in nature.

Medical Facilities

All range of Medical facilities are available in Mumbai. There are sufficient amount of Hospital & Doctors Clinic both government as well as private. The Government Medical Facility are available at nominal cost. In Case of Private Clinics normally fees charged by the doctor is as follows:

First Visit:  Rs 400

Next Visit: Rs 200

Medicines are easily available and sold on MRP rates.

Telephone Expenses:

Mobile call charges per minute are Rs. 0.50 for Local Call and Rs 1.00 for STD Call. The rates are very competitive and many cheaper plans are also available.

Education

School range from all Boards (State Board, CBSE, ICSE, IB, IGSE) are fairly available in Mumbai. Admission are generally started in the month of August-October for the next session (Session Starts from 1^st April).

	Most of the Schools
	Fee Range	One Time Deposit
State Board	Minimum-10,000	Minimum-10,000
ICSE	30,000-50,000	65,000
IB/IGSE	50,000-100,000	100,000

Other Grocery Items

Generally household items are available in the following ranges. Superstore are also located in the city which offer items at discounted rate.

	Amount in Rs.
MilK	30-45/ litre
Vegetables	60/Kg
Fruits	100/Kg
Cereals	40-100/Kg
Rice	58-120/Kg
Wheat	12-30/Kg

Entertainment

All Sort of Entertainment is available in the city that includes multiplex theatres, mall , restaurants, beer bar ,water park, amusement parks etc.

Normally Couple with two kids can enjoy their weekend in the range of Rs 2,500-3,000(i.e. decent weekend)

In case of any specific query about Mumbai then reader can write to me. I will try to resolve the same.

Nalin Bhandari Chartered Accountant Cell:+919930018666