Page 304 - DCOM201_ACCOUNTING_FOR_COMPANIES_I
P. 304
Unit 12: Divisible Profits and Managerial Remuneration
Solution: Notes
Calculation of Net Profit for Managerial
Remuneration u/s 349
Particulars
Net profit as per p. & l. A/c. 5,58,500
Less: non–trading incomes
(i) Capital profit on sale of fixed assets ( 40,000 – 25,000) 15,000
(ii) Premium on issue of shares 10,000
(iii) Profit on sale of forfeited shares 5,000 30,000
5,28,500
Add: inadmissible items:
Workmen compensation voluntary ( 12,500 – 5,000) 7,500
Excess depreciation on fixed asset ( 50,000 – 40,000) 10,000
Donations ( 17,500 – 12,500) 5,000
Loss on sale of investment 12,500
Reserve for redemption of preference shares 75,000
Development rebate reserve 50,000
Provision for taxation 5,00,000 6,60,000
Net profit for the purpose of managerial remuneration 11,88,500
Calculation of Managerial Remuneration
As per section 309 of the Companies Act, if a company has a managing director, other part-time
directors will be entitled to get a commission @ 1%. Only with the approval of the Central
Government, a higher rate of remuneration can be given to the other directors.
Commission payable to managing director @ 5% on 11,88,500 59,425
Commission payable to other directors @ 2% (given) on 11,88,500 23,770
Example 6: Titu Tyres Limited, having three whole-time directors on its board, the
others being part-time directors earned profits during the year ended 31st march, 2005 to the
tune of 7,50,000 after taking into consideration the following:
Depreciation on Fixed Assets 1,43,400
(depreciation admissible as per Income Tax Rules 98,400)
Provision of Income Tax 3,67,500
capital expenditure included in general expenses charged to
Profit and Loss Account 37,500
Calculate the maximum remuneration payable to the whole-time directors, assuming that the
remuneration payable to the whole-time directors to be calculated on net profits remaining
after payment of commission to part-time directors, is to be calculated on net profits remaining
after payment of remuneration to whole-time directors.
LOVELY PROFESSIONAL UNIVERSITY 297