Page 301 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes (viii) Scientific research expenditure (for setting up new machinery) 70,000
(ix) Managing director’s remuneration paid 1,05,000
Other information:
(i) Depreciation allowable under schedule XIV of the Companies Act 1,22,500

(ii) Bonus liability as per payment of bonus act 63,000
Solution:
Calculation of net profit for
managerial remuneration u/s 349

Particulars
Net profits 7,00,000
Add: inadmissible items:
(a) excess of depreciation ( 1,40,000 – 1,22,500) 17,500
(b) preliminary expenses 35,000
(c) provision for doubtful debts 31,500
(d) scientific research expenditures 70,000
(e) managing director’s remuneration 1,05,000
(f) tax provision 10,85,000 13,44,000
20,44,000
Less: deductible items
Liability of bonus under Payment of Bonus Act. 63,000
- bonus already debited 52,500 10,500
Profit on sale of fixed assets
Sales proceeds (38,500 + 54,250) 92,750
- Original cost of assets 70,000 22,750 33,250
Net profit for managerial remuneration 20,10,750
Calculation of managerial remuneration

Remuneration @ 5% on 20,10,750 1,00,537.50
–Managing director’s remuneration already paid 1,05,000.00
Excess remuneration paid 4,462.50

Example 4: The manager of XYZ Ltd. is entitled to get a salary of 5,000 per month plus
1% commission on the net profit of the company. After such salary and commission. The following
is the profit and loss account of the company for the year ended 31st December, 2005:
Profit and Loss A/c.
Particulars Particulars

To salaries, wages & bonus 3,85,000 By gross profit b/d 18,00,000
To general expenses 1,48,000 By subsidy from govt. 1,20,000
To depreciation 1,64,000 By profit on sale of assets
To expenditure on scientific research
(Cost of apparatus) 28,000 Cost price 5,00,000
Contd...
To manager’s salary 60,000 W.D.V. 3,60,000 2,00,000
To commission to manager 12,000
To provision for bad & doubtful 35,000
294 LOVELY PROFESSIONAL UNIVERSITY
debts
To provision for income tax 4,80,000
To proposed divided 2,00,000
To balance c/d 6,08,000
21,20,000 21,20,000