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Intermediate Accounting (Kieso)
Found in: Page 1161

Short Answer

What is a private pension plan? How does a contributory pension plan differ from a noncontributory plan?

Gratuity is a type of plan where the employee is paid a certain sum of money after completing their employment in an organization. It is produced after retirement by the organization.

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Step by Step Solution

Private pension plan

Private pension plans are those plans where an organization offers its employees the retirement benefits in monetary terms, which are deducted in advance from the monthly pay cycle. Both an employer and the employee contribute to the pension plans.

Contributory pension plan different from the non-contributory plan

Contributory pension plans are those where the organization's employee bears a particular part of a specific section of the total benefit cost.

Non-contributory pension plans are those plans where the total benefit cost is borne by the organization for its employees.

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