Accounting Treatment of Enhanced Provision of Gratuity

                         The pay revision of the officers and employees has been
                        carried out by the Public Sectors Insurance companies in
                        the year 2010-11 and Government by Gazette, Notification
                        dated May 24, 2010 has revised upward maximum limit for
                        Gratuity under “Payment of Gratuity Act 1972” from Rs.
                       
3,50,000/- to Rs. 10,00,000. The above factors will lead
                        to the increase in liability on account of gratuity
                        which in turn will impact the insurers profitability
                        significantly as they need to provide the same in the
                        financial year 20010-11. This will cause a strain on
                        their solvency as well as on their performance results.
                        
                        In view of the above, Authority hereby permits the
                        insurers to amortize the additional  liability on
                        account of gratuity over a period of five years starting
                        from financial year 2010-11 subject to compliance of the
                        following conditions
                        
                        The additional liability on account of enhancement in
                        gratuity limits may be fully recognized and charged to
                        Revenue Account and/or Profit and Loss Account for the
                        financial year 2010-11.The expenditure indicated above,
                        may, if not fully charged to the Revenue Account and/or
                        Profit and Loss Account during the financial year
                        2010-11, be amortized over a period of five years
                        (subject to (ii) below) beginning with the financial
                        year ending March 31, 2011 subject to a minimum of 1/5th
                        of the total amount involved every year.
                        
                        The unamortized expenditure carried forward should not
                        include any amounts relating to separated/retired
                        employees.
                        
                        A complete disclosure in the notes of accounts to this
                        effect giving the total amount of liability on this
                        account, amount already recognized to revenue / profit &
                        Loss Account and the remaining amount should be made in
                        the Notes to Accounts to the financial statements.