Wednesday, July 20, 2016

CALCULATING THE NET PROFIT UNDER SECTION 198 OF THE COMPANIES ACT 2013 FOR PAYMENT OF MANAGERIAL REMUNERATION AND CORPORATE SOCIAL RESPONSIBILITY COMMITMENT



CALCULATING THE NET PROFIT UNDER SECTION 198 OF THE COMPANIES ACT 2013 FOR PAYMENT OF MANAGERIAL REMUNERATION AND CORPORATE SOCIAL RESPONSIBILITY COMMITMENTS

TABLE SHOWING HOW TO CALCULATE NET PROFITS UNDER SECTION 198 OF COMPANIES ACT 2013

A
In Rupees
Profit before tax as per P&L Statement
50000000
Add the following items if debited to P&L Statement before
arriving profit before tax

Managerial remuneration
20000000
Provision for Bad doubtful debts
1000000
Loss on sale/disposal/discarding of assets.
0
Loss on sale of investments
20000000
Provision for diminution in the value of investments
0
fixed assets written off
1000000
Fall in the value of foreign currency monetary assets
0
Loss on cancellation of foreign exchange contracts
0
Write off of investments
200000
Provision for contingencies and unascertained liabilities
1000000
Lease premium written off
0
Provision for warranty spares/supplies
0
Infructuous project expenses written off
2300000
Provision for anticipated loss in case of contracts
0
Loss on sale of undertaking
2500000
Provision for wealth tax
600000
compensation paid under VRS
3900000
Total
102500000
Less the following if credited to P&L statement for arriving at
profit before tax: business compromises of buying &
 selling any such property or asset) and revenue profit
(difference between
original cost and WDV should not be deducted)

Capital profit on sale/disposal of fixed assets(the same should
 be added if the co.,
0
Profit on sale of any undertaking or its part
20000000
Profit on buy back of shares
0
Profit/discount on redemption of shares or debentures
1000000
Profit on sale of investments
20000000
Compensation received on non-compete agreements
9000000
Write back of provision for doubtful debts
4500000
Write back of provision for doubtful advances
5600000
Appreciation in value of any investments
20000000
Compensation received on surrender of tenancy rights
0
Profit on sale of undertaking
10000000
Write back of provision for diminution in the value of investments
0
Profit on sale of forfeited shares & shares of subsidiary/
associated companies
100000
Total
90200000
A -B
12300000










































































You can download the ready recknoer excel working sheet for calculating the managerial remuneration payable  from the following link

https://drive.google.com/file/d/0B671-tK9HUedaVpydU4zU1R2NG8/view?usp=sharing

After calculating the profit as said above, the limits specified in the Companies Act 2013 in respect of managerial remuneration can be applied to know the maximum allowable remuneration.        Here, in this case, Rs 1.23 Crores can be used to arrive at percentage of managerial remuneration to be payable by the company under section 198 of Companies Act 2013. 
If the actual remuneration is more than maximum allowable remuneration (i.e. Rs 1.23 Crores), then the Company has to obtain the prior permission of Central Government.

In case the company has failed to spend the two per cent of the average net profit of the last three financial years or any part thereof, the company shall provide the reasons for not spending the amount in its Board report.

In case of company is not having adequate profits or to pay remunerations to its directors within the limit of Schedule V Part II of the Companies Act ,2013 , Company has to pass a special resolution in the general meeting.

2 comments:

  1. Dear Sir,

    Please clarify when section 198(4) allowed certain items to be deducted then why you have added them back

    ReplyDelete
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