Provisions for gratuity liability in the books of account - Companies Law - CIRCULAR NO. 3/98

CIRCULAR NO. 3/98 [F. NO. 5/10/98-CLV], DATED 18-5-1998, ISSUED BY DEPARTMENT OF COMPANY AFFAIRS, MINISTRY OF LAW, JUSTICE COMPANY AFFAIRS Subject:- Provisions for gratuity liability in the books of account 1. I am directed to refer to this Department Circular No. 13/77 dated 21-11-1977 regarding the above subject and to say that some doubts have been raised regarding application of said circular in view of coming into effect of provisions of section 209(3)(b) of the Companies Act, 1956, with effect from 15-6-1988. Section 209(3)(b) of the Companies Act, 1956 provides that "proper books of account shall not be deemed to be kept with respect to the matters specified therein, if such books are not kept on accrual basis and according to double entry systems of accounting." 2. The matter has been re-examined and it has now been decided to clarify that it is mandatory for companies to provide for Gratuity Liability in their books of account in accordance with the provisions of section 209(3)(b) of the Companies Act, 1956, taking into account the Accounting Standard 15 (Accounting for Retirement Benefits. In the Financial Statements of Employers) of the Institute of Chartered Accountants of India.