Page 302 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

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
Unit 12: Divisible Profits and Managerial Remuneration
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
To manager’s salary 60,000 W.D.V. 3,60,000 2,00,000 Notes
To commission to manager 12,000
To provision for bad & doubtful 35,000
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

Depreciation as per income tax rules amounts to 1,62,000. Calculate the remuneration payable
to the manager.

Solution:
Calculation of Net Profit for Managerial Remuneration u/s 349
Particulars
Net profit as per p. & l. A/c 6,08,000
Add: inadmissible items excess depreciation (1,64,000 – 1,62,000) 2,000
Expenditure on scientific research 28,000
Manager’s salary 60,000
Manager’s commission 12,000
Provision for bad & doubtful debts 35,000
Provision for income tax 4,80,000
Proposed dividend 2,00,000 8,17,000
14,25,000
Less: non-trading profits:
Capital profit on the sale of assets ( 3,60,000 + 2,00,000 – 5,00,000) 60,000 60,000
Net profit for the purpose of managerial remuneration 13,65,000

Calculation of Managerial Remuneration
Net profit before manager’s salary & commission = 13, 65,000
- Manager’s salary (12× 5000) 60,000
Net profit before manager’s remuneration 13,05,000


13,05,000 1
Manager’s remuneration @ 1% = = 12,920
100 1

As the manager has already withdrawn 12,000 as commission,
Now the commission payable to manager will be (12,920 – 12,000) = 920

Total remuneration of manager ( 60,000 + 12,920) = 72,920

13,65,000 5
Maximum remuneration to manager @ 5% = = 65,000
100 5

Excess remuneration paid to manager 7,920

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