1.12     Query

Accounting treatment of interim relief advance of dearness allowance.

1. The Government has allowed to pay an advance against interim relief to certain categories of employees covered under the Industrial D.A., in a public sector corporation, registered under the Companies Act, 1956. Accordingly, a Memorandum of Understanding has been signed with the Workers’ union for payment of advance against interim relief. As per the Memorandum, the said advance is purely interim in nature and is to be absorbed in wage settlement which will be negotiated under the wage policy and guidelines issued by the Government.

2. A doubt has now arisen regarding the accounting treatment of this advance. As the advance is to be absorbed against future wage revision and the nature of amount paid is that of an ‘advance’, in the view of the querist, it cannot be shown under the appropriate expenditure head. Also, this is a liability which is to be notionally liquidated in about 1-1/2 years time after the wage revision isfinalised and settled. However, if a corresponding liability is created, this will inflate the assets and liabilities as the corporation has already paid advance against this liability. If the two figures, i.e., those pertaining to advance and liability are netted, then there will not be any figure. The querist feels that this will also not be proper, as on the date of balance sheet, this amount of advance will remain outstanding against the employees. The amount of such advance is substantial. The querist has further expressed his view that the said amount should also not be charged to prior period expenses in the year in which the wage revision is finalised.

3. The querist has sought the opinion of the Expert Advisory Committee, in the above context, as to whether the said payment can continued to be shown as advance without creating any liability for expenditure pending the final settlement of wage revision and whether the adjustment of such advance can be carried out charging the same to the final head of expenditure of the year in which the wage settlement is reached without operating the prior period adjustment account.

                                                                   Opinion                    February 12, 1988

1. The Committee notes that the facts of the query are not clear as to the nature of interim relief given to the employees of the corporation. The Committee is of the view that interim relief is normally given to employees till the final settlement of wages. At the time of final settlement, the amount of interim relief is absorbed or merged with the final regular wages. Interim relief granted to the employees is normally not of the nature of an advance, as the said amount is not deducted from the wages of the employees after final settlement.

2. The Committee is of the opinion that in case the interim relief is of the nature mentioned in para 1 above, as is normally the case, the amount in respect of the relief should be expensed, in the facts and circumstances of the query, in the year in which it is paid under the appropriate expenditure head and is not to be treated as an ‘advance’.

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