The manager of Grapes Ltd. is entitled to a salary of ₹1 (one) Lakh per month and also to a commission of 2% on profits after taxation and his salary but before charging his commission on profits. The Statement of Profit

CS Executive · Company Accounts & Auditing Practices · PYQS · December 2018
The manager of Grapes Ltd. is entitled to a salary of ₹1 (one) Lakh per month and also to a commission of 2% on profits after taxation and his salary but before charging his commission on profits. The Statement of Profit and Loss of the company for the year ended 31st March, 2018 was as follows: Particulars (₹ in Lakh) I. Gross Profit 560 II. Expenses Employees Benefit Expenses 110 Depreciation (including Development Reserve of ₹15 Lakh) 55 Cost of Finance 22 Other Expenses 60 Total Expenses 247 Profit Before Tax (I-II) 313 Note 1. Employees Benefit Expenses: Particulars (₹ in Lakh) Salaries and Wages (excluding Manager's Salary of ₹12 Lakh) 95 Manager's Salary paid 12 Directors Fees 3 110 Note 2. Corporate Tax Rate is 30%. You are required to calculate the total remuneration payable to manager under Section 197 of the Companies Act, 2013.

Answer & Explanation:

Calculation of Net Profit u/s 198 for the purpose of Managerial Remuneration Particulars (₹ In Lakhs) I Gross Profit 560 I Expenses Salaries and Wages (excluding Manager's Salary) 95 Director Fees 3 Depreciation as per Schedule II (₹55 lakh Less: Development Reserve ₹15 Lakhs) 40 Cost of Finance 22 Other Expenses (assumed fully admissible) 60 Total Expenses 220 Net Profit u/s 198 (I-II) 340 Maximum Remuneration payable to Manager u/s 197: 5% of Net Profit calculated u/s 198 i.e. 5% of ₹340 lakhs = ₹17 lakhs

Topics: Company Accounts

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