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.