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Illustration 1
2
Problem Statement
The Managing Director of A Ltd. is entitled to 5% of the annual
net profits, as his remuneration, subject to a minimum of
Rs.25,000 per month. The net profits, for this purpose, are to
be taken without charging income-tax and his remuneration
itself. During the year, A Ltd. made net profit of Rs.43,00,000
before charging MDs remuneration, but after charging
provision for taxation of Rs.17,20,000.
Compute remuneration payable to the Managing Director.
3
Solution
Calculation of remuneration of the Managing
Director(All Figures in Lakhs)
Net profit as per books
43.00
Add: Provision for taxation 17.20
Annual profit for the purpose of managerial remuneration
60.20
Managing Directors Remuneration @ 5% of above
=3.01
Minimum remuneration to be paid to the Managing
Director
= Rs.25,000 per month 12
=3.00
Hence, in this case, remuneration to be paid to the
Managing Director of A Ltd. = Rs.3,01,000.
Illustration 2
5
Problem Statement
Rs/Lakh
10,000
200
600
55
15
30
20
Problem Statement - 2
Particulars
Rs/Lakh
(h)Directorsfees
15
(i)ProfitonsaleofassetsU/S349(j)Lossonsaleof assetsU/S
40
349
35
(k)Priorperiodadjustments(credit)
(l)Provisionforbaddebts
(m)Exgratiapaymenttoanemployee
15
100
5
Solution
Particulars
Rs/Lakh
Rs/Lakh
25,000
NetprofitafterProv.forTaxation
Add,Provisionfortaxation
Directorsfees
Depreciationasperbooks
Managerialremuneration
Provisionfordiminutioninthevalueofinvestments
Provisionforbaddebts
Provisionforwealthtax
Exgratiapaymenttoanemployee
Total
LessDepreciationasperSec.350
Profitonsaleofinvestments
Priorperiodadjustments(credit)
CapitalprofitonsaleofpartoftheUndertaking
Baddebtwrittenoff
10,000
15
600
55
15
100
20
5
500
30
10,810
35,810
(805)
15
200
60
8
Illustration 3
9
Problem Statement
From the following particulars of Prakash Limited, you
are required to calculate the managerial
remuneration in the following situations.
(i)
There is only one whole time director.
(ii) There are two whole time directors,
(iii) There are two whole time directors, a part time
director and Manager
10
Problem Statement - 2
1.
2.
3.
4.
5.
Solution:
Sections 198 and 309 of the Companies Act, 1956 prescribe the maximum percentage of profit
that can be paid as managerial remuneration. For this purpose, profit is to be calculated in the
manner as specified in Section 349.
8,70,410
andManagerialremuneration,butafter
Rs.
12,05,410
depreciationandprovisionforrepairs
Addback:Depreciationprovidedinthe
books
Provisionforrepairsof machinery
Less: Depreciationallowableunder
3,10,000
25,000
3,35,000
ScheduleXIVActualexpenditureincurred
onrepairs
Profitundersection349
2,60,000
15,000
2,75,000
9,30,410
12
Working Notes
Calculation of managerial remuneration
(i)There is only one whole time director
Managerial remuneration= 5 % of Rs. 9,30,410
= Rs. 46,520.50
(ii)
There are two whole time directors
Managerial remuneration=10% of Rs. 9,30,410
=Rs. 93,041
(iii)There are two whole time directors, a parttime
director and a manager
Managerial remuneration =11% of Rs. 9,30,410
=Rs. 1,02,345.10
13
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