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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.










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