Question

Which of the following items is part of compensation of employees? Give reasons for your answer.
(i) Entertainment allowance to an employee to entertain business guests.
(ii) Employers' contribution to gratuity fund of the employees.
(iii) Employee's contribution to provident fund.
(iv) Payment of claim of insurance claim by LIC to the injured worker.
(v) Old age pension.
(vi) Medical expenses of a firm on treatment of employee's family.

Answer 1

(i) It is not a part of compensation of employees (COE) as it is paid for the benefit of the business and not for the employee. In fact, it is an intermediate consumption expenditure.
(ii) It is a part of compensation of employees as such contribution is for the benefit of employees and is paid for his production services.
(iii) It is not a part of compensation of employees as such contribution is made by the employee from COE only.
(iv) It is not a part of compensation of employees as LIC is not the employer of the injured workers.
(v) It is not a part of compensation of employees as it is paid to old people due to their old age and not because of any productive contribution. Moreover, it is paid by an agency other than an employer. In fact, it is a transfer payment.
(vi) It is a part of compensation of employees as such expenditure is incurred by the firm in return for the productive services of the employee.