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Accounting for Companies-I

Notes

Notes As per the Companies Act, a company cannot pay commission to its managerial
staff on the profit left after charging such commission. But in this illustration, commission
to the manager is paid after charging his commission. Therefore, his commission is
calculated by the following formula:

Example 5: From the following profit and loss a/c of Slow and Steady Ltd., for the year
ended 31st December, 2005, calculate the commission payable to the managing director and
other directors of the company whose commission was fixed @ 5% and 2% respectively on the
profit of the company before charging their commission:

Particulars Particulars
To salaries & wages 10,00,000 By gross profit 25,50,000
To rent, rates & taxes 2,25,000 By bounties and subsidies
Received from government 50,000
To repairs & renewals 30,000
To miscellaneous expenses. 70,000 By profit on sale of fixed assets 40,000
To workmen compensation including By premium on issues of shares 10,000
5,000, legal compensation 12,500
To interest on bank overdraft. 20,000 By profit on sale of forfeited shares 5,000
To interest on debentures 25,000
To director’s fees 9,000
To donation 17,500
To depreciation on fixed assets 50,000
To loss on sale of investment 12,500
To reserve for redemption of redeemable
Pref. Shares 75,000
To development rebate reserve 50,000
To provision for taxation 5,00,000
To balance c/d 5,58,500
26,55,000 26,55,000

Notes

1. Original cost of fixed assets sold 95,000
Written down value of fixed assets sold 70,000

Sale proceeds of fixed assets 1,10,000
2. Donation allowable under Income Tax Act 12,500
3. Depreciation allowable for income tax purpose 40,000

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