Problem on MANAGERIAL REMUNERATION

Following is the Profit & Loss Statement of Zodiac Co. for the year ended 31.3.14.
Dr. Cr.

PARTICULARS AMOUNT(Rs000) PARTICULARS AMOUNT(Rs000)

To salaries & wages paid to 960 By Gross Profit 5075
employees
To bonus for the year 2012-13 25 By premium on issue of shares 250
and debentures
To Interest on debentures 60 By profit on sale of forfeited 25
shares
To repairs for: By profit on sale of building 450
movable property 5 (sale proceeds- 11 lakhs,
immovable property 10 cost- 10 lakhs, WDV- 6.5 lakhs)
To insurance premium 25 By profit on sale of another 150
against the risk of meeting the machinery
liability on account of (sale proceeds- 5 lakhs,
compensation cost- 6 lakhs, WDV- 3.5 lakhs)
To contribution to provident 125 By bounties and subsidiaries 300
fund received from the government
To charitable donation 93 By interest on investment 99

To depreciation 410 By share transfer fees 66

To compensation for breach of 5 By upward revaluation of fixed 142
contract assets
To interest on unsecured loans 30
To loss on sale of investment 25
To loss on sale of machinery 100
(sale proceeds- 5.5 lakhs,
cost- 10 lakhs,WDV- 6.5lakhs)
To expenses on scientific research 120
and cost of an operation
To provision for income tax 810
To provision for doubtful debt 42
To bad-debts written off 33
To directors fees 25
To ex-gratia payment to employees 10
not under any legal obligation
To loss on sale of part of an 330
undertaking
To carry forward of loss 450
To provision for repairs 60
To proposed dividend 400
To transfer to General Reserve 300
To corporate dividend tax 68
To balance in profit & loss c/d 2036
TOTAL 6557 TOTAL 6557
 Additional Information: Amount ( RS 000)
1. Estimated liability on account of bonus, for the year 2013-14, 30
in accordance with the payment of bonus act, 1965
2. Depreciation on fixed assets as per section 123(2) 450
3. Charitable donation includes, amount directly related to business 50
4. Carry forward loss includes depreciation amount 150

Calculate overall Managerial Remuneration under section 197 and

what will be the Remuneration when the company has:
1. 1 MD
2. 1 MD + 1 WTD
3. 3 Part time or non-executive director [3PTD(i.e 3 NED)]
4. 3 non-executive director + 1 MD
5. 1 WTD + 1 Manager
6. 2 WTD + 1 Manager
7. 3 Non-executive director + 1 Manager
8. 3 Non-executive director + 2 WTD + 1 Manager
9. 3 Non-executive director + 1 WTD + 1 Manager.
[MD= Managing Director; WTD= Whole Time Director; PTD=Part Time Director; NED=
Non-Executive Director and PTD=NED]

SOLUTION:

Statement showing the computation of Net Profit as per section 197 of the Companies Act,
2013 for the purpose of calculating Managerial Remuneration:

Sl. No. PARTICULARS AMOUNT(Rs000) AMOUNT(Rs000)

A. Balance in profit & loss account (cr.) 2036
B. Add: Expenses/Losses not allowed:
- Bonus to employees for the year 2012-13 25
- Loss on sale of investment 25
- Expenses on scientific research and cost 120
of an operation (being capital in nature)
- Depreciation (to be taken separately) 410
- Part of depreciation amount included in 150
Carry forward of loss
- Provision for income tax 810
- Provision for doubtful debts 42
- Ex-gartia payment to employees not 10
under any legal obligation
- Charitable donation related to business portion 50
- Loss on sale of part of an undertaking 330
- Provision for repairs 60
- Proposed dividend 400
 - Transfer to general reserve 300
- Corporate dividend tax 68 2800
TOTAL 4836
C. Less: Income/Profit not allowed:
- Premium on issue of shares & debentures 250
- Profit on sale of forfeited shares 25
- Profit on sale of building [sale proceeds 100
less cost price Rs.(1100-1000)]
- Upward revaluation of fixed assets 142 (517)
TOTAL 4319
D. Less: 2 Items yet to be debited
- Depreciation on fixed asset as per sec.123(2) 450
- Estimated liability on account of bonus
for the year 2013-14, in accordance with
Payment of Bonus Act, 1965 30 (480)
E. Net profit for the purpose of calculating
Managerial Remuneration as per sec.197 3839

(Rupees in 000)
Therefor here are the following calculations:
Net profit for the purpose of calculating Managerial Remuneration as per sec.197= 3839
- The overall managerial remuneration = 11% of Net Profit= 11% of 3839
=Rs. 422.29

1. 1 MD = 5% of 3839
= Rs.191.95

2. 1 MD + 1 WTD = 10% of 3839

= Rs.383.90

3. 3 Non-Executive Director = 3% of 3839

= Rs.115.17

4. 3 Non-Executive Director + 1 MD = 1% of 3839 + 5% of 3839

= Rs.38.39 + Rs.191.95
= Rs.230.34

5. 1 WTD + 1 Manager = 5% of 3839 + 5% of (3839

. Remuneration to 1 WTD)
. = 5% of 3839 + 5% of (3839-5% of 3839)
= 191.95 + 5% of (3839 - 191.95)
. = 191.95 + 5% of 3647.05
= Rs. 191.95 + Rs.182.35
= Rs.374.30
 6. 2 WTD + 1 Manager = 10% of 3839
= Rs.383.90

7. 3 Non-Executive Director + 1 Manger = 1% of 3839 + 5% of (3839 1% of 3839)

= 38.39 + 5% of ( 3839 38.39)
= 38.39 + 5% of 3800.61 = 38.39 +190.03
= Rs.228.42

8. 3 Non-Executive Director + 2 WTD + 1 Manager = 1% of 3839 + 10% of 3839

= 38.39 + 383.90
= Rs.422.29

9. 3 Non-Executive Director + 1 WTD + 1 Manager

= 1% of 3839 + 5% of 3839 + 5% of (3839 1% of 3839 5% of 3839)
= 38.39 + 191.95 + 5% of (3839 38.39 191.95)
= 38.39 + 191.95 + 5% of 3608.66
= 38.39 + 191.95 + 180.43
= Rs.410.77

NOTES:
1. While computing Net Profit for the purpose of directors remuneration, remuneration of
Mangers and Directors is not deducted.
2. While computing Net profit for the purpose of Managers Remuneration, Directors
remuneration is deducted.