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Actuarial Valuation of Gratuity

Actuarial Valuation of Gratuity

What is Gratuity?

Actuarial Report for Gratuity – The valuation of leave encashment liability is combined with the valuation of gratuity liability. Actuaries have applied the same principles and technologies to the valuation of leave encashment liability that they did to the valuation of gratuity liability. The reasons for this approach are self-evident, given that leave encashment is permitted upon death, cessation of service, or retirement from service, and gratuity is also payable upon death, cessation of service, or retirement from service. We have ignored fundamental differences in how the quantum of liability changes from one accounting date to the next, as well as what ‘drivers’, propel the changes in the quantum of liability.

An actuarial valuation of Gratuity may also be required for reasons other than accounting. Actuarial Report for Gratuity As an example:

·       You want to determine whether the amount of assets you need to hold to cover your employee benefits liability is adequate.

·       You want to figure out how much money you need to put into your gratuity fund or trust.

·       What should the cost of taking on the benefits liability in a merger or acquisition be?

·       You want to settle the liability as part of the process of ceasing operations or winding up your business.

Gratuity, leave, and pension plans are frequently subject to actuarial valuation. If you’re familiar with the actuarial valuation process, you’ll notice that leave plans are also known as ‘compensated absences’ or ‘leave encashment’ plans. Actuarial Report for Gratuity. However, actuarial valuation is not required for many types of employee benefit plans. Many non-cashable leave schemes, for example, do not necessitate an actuarial valuation. Actuarial Report for Gratuity.

There are issues to consider for various schemes.


Accounting for pension plans is generally quite complicated, and some of the issues are discussed here.

This publication discusses issues concerning the accounting of leave schemes. Actuarial Report for Gratuity.

A gratuity scheme is relatively simple to manage because the rules are usually outlined in the regulations.


The actuarial valuation process does not end with receiving an actuarial report from an actuary. You must Comprehend the findings, validate them, and challenge them. The auditors must conduct their own evaluation of the actuarial report.

Also Read : Get Detail Valuation Service by Mithras Consultants , The ESOP Structure , IND AS 19


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