Compute company's net profit as laid down under Companies Act, 2013 to calculate managerial remuneration.

According to section 198 of the Companies Act, 2013 net profits for any financial year for the purpose of managerial remuneration payable under section 197 of the Act shall be calculated as follows: Credit shall not be given for those sums specified in section 198(3) Less: (if credited to P&L account for arriving at profit before tax) Profits from sale of any immovable property or fixed assets of capital nature comprised in the undertaking or any of the undertakings unless business of the company consists, whether wholly or partly, of buying and selling any such property or assets Provided where the amount for which any fixed asset is sold exceeds the written down value thereof, credit shall be given for so much of excess as is not higher than the difference between the original cost of that fixed asset and its written-down value Any change in carrying amount of an asset or of a liability recognised in equity reserves including surplus in profit & loss account on measurement of the asset or liability at fair value Any amount representing unrealised gains, notional gains or revaluation of assets In making the computation aforesaid the following sum specified under section 198(4) shall be deducted - debts considered bad and written off or adjusted during the year Non-deductible items [section 198(5)] Loss of capital nature including loss on sale of undertaking Current taxes payable by the company Computation of net profit for purpose of calculating managerial remuneration as laid down under section 198 of the Act Particulars Amount (in lakh) Net profit as per P & L statement 56.00 Less Profit on sale of fixed asset not to be included (refer working note) 3.20 Less Revaluation of assets 4.00 Less Change in carrying amount of asset on measurement at fair value 7.20 Balance 41.60 Add Tax expenses, current tax payable 12.00 Add Loss of a capital nature including loss on sale of undertaking 2.40 Net profit under section 198 for managerial remuneration 56.00 Working note: Particulars in lakh A Original cost 12.80 B Written down value 10.40 C Sale value 16.00 D Profit on sale of fixed asset 5.60 E Amount to be included in profit (A-B) 2.40 F Amount not to be included in profit (D-E) 3.20 Note - credit shall not be given for profits from sale of any immovable property or fixed assets (provided credit shall be given for so much of excess as is not higher than the difference between the original cost of that fixed asset and its written down value. Profit on sale of fixed assets = ₹ 16 lakh - ₹ 10.40 lakh = ₹ 5.60 lakh but credit cannot be greater than the difference of ₹ 12.80 lakh (original cost) - ₹ 10.40 lakh (WDV) = ₹ 2.40 lakh. Hence ₹ 3.20 lakh should be deducted from net profit.