Managerial remuneration problems and sloution.pptx

Advance corporate Accounting
Managerial remuneration problems and solution

1. Advance corporate Accounting managerial Remuneration

2. Permissible Managerial Remuneration Payable under the Companies Act 2013 Remuneration Payable to Directors who are neither Manager Directors nor Whole-Time Directors If there is a director who is neither a Managing Director/ Whole Time Director 3% of the net profits of the company if there is no Managing Director/ Whole Time Director For directors who are neither managing director or Whole-time Directors 1% of the net profits of the company if there is a managing director/ whole time director.

3. CONDITION MAX REMUNERATION IN ANY FINANCIAL YEAR Company with one Managing Director/ Whole time director/ Manager 5% of the net profits of the company Company with more than one Managing director/ Whole time director/ Manager 10% of the net profits of the company Overall Limit on Managerial Remuneration 11% of the net profits of the company

4. Q 1. The following is the Draft of Profit and Loss A/c of Wipro Ltd. For the year ended 31 st March 2021. Particulars Amt. Particulars Amt. To Administration, Selling and Distribution Fees 8,22,542 By Balance B/d 5,72,350 To Director Fees 1,34,780 By Balance from Trading A/c 40,25,365 To Interest on Debentures 31,240 By Subsidy Received from Government 2,37,925 To Managerial Remuneration 2,85,350     To Depreciation on Fixed Assets 5,22,543     To Provision for Taxation 12,42,500     To General Reserve 4,00,000     To Investment Revaluation Reserves 12,500     To Balance C/d 14,20,185               48,71,640   48,71,640

5. Depreciation on fixed assets as per Schedule II of Company’s Act 2013 was Rs. 5,75,345. You are required to calculate the maximum limits of the managerial remuneration as per Company’s Act 2013.

6. Solution: Calculation of Net Profit Under Section 198 of the Company’s Act 2013 Particulars Amt. Amt. Incomes : Balance from Trading A/c 40,25,365 Subsidies Received from Government 2,73,925 42,99,290 Less: Expenses Administration, Selling and Distribution Fees 8,22,542 Director’s Fees 1,34,780 Interest on Debentures 31,240 Depreciation on Fixed Assets as per Schedule II 5,75,345 15,63,907 29,35,383 Profit as per Section 198

7. Maximum Managerial Remuneration under Company’s Act 2013 Net Profit = 27,35,383 X 11 % = 3,00,392

8. Calculation of Effective Capital Particulars Amt. Paid up Capital XXX Add: Reserves and Surplus XXX Revaluation Reserve (Exclude) - Share Application Money Pending Allotment (Exclude) - Add: Long Term Borrowing And Deposit XXX XXXXX Less: Preliminary Expenses (XXX) Less: Profit & Loss ( Dr. Balance) (XXX) Less: Investment (XXX) (Only in case of Non-Investment Company) XXXXX Deduct Investment Held Ignore Investment

9. Provision in case of Inadequate Capital Effective Capital Limits Of Yearly Remuneration Negative or Less than 5 Crores 60 Lakhs 5 Crores and Above but Less than 100 Crores 84 Lakhs 100 Crores and Above but Less than 250 Crores 120 Lakhs 250 Crores and Above 120 Lakhs + 0.01% of the Effective capital in excess of 250 Crores

10. Q 2. The following extract of balance sheet of Infosys Ltd. was obtained balance sheet as on 31 st March 2021. Liabilities Amt. Authorised Capital:   20,000, 14% Preference Share capital of Rs.100 20,00,000 2,00,000 Equity Share of Rs.100 each 2,00,00,000   2,20,00,000 Issued and Subscribed Capital:   15,000, 14% Preference of Rs. 100 each Fully Paid 15,00,000 1,20,000 Equity Share of Rs. 100 each, Rs. 80 Paid-up 96,00,000 Share Suspense A/c 20,00,000     Reserves and Surplus:   Capital Reserve (Rs. 1,50,000 is Revaluation Reserve) 1,95,000 Security Premium 50,000    

11. You are required to compute effective capital as per provision of Schedule V. Would your answer be the same if Infosys is an Investment Company ? Secured Loans:   15% Debentures 65,00,000     Unsecured Loans:   Public Deposits 3,70,000 Cash Credit Loan from SBI (Short Term) 4,65,000     Current Liabilities:   Trade Payables 3,45,000     Assets:   Investment is Share, Debentures, etc 75,00,000 Profit and Loss A/c (Debit Balance) 15,25,000    

12. Solution: Particulars Infosys Non - Investment Company Infosys Investment Company 15,000, 14% Preference Shares of Rs.100 each 15,00,000 15,00,000 1,20,000 Equity Shares of Rs. 100 each Rs. 80 paid 96,00,000 96,00,000 Capital Reserve (1,95,000 – 1,50,000) 45,000 45,000 Security Premium 50,000 50,000 15% Debentures 65,00,000 65,00,000 Public Deposit 3,70,000 3,70,000 Less: Profit & Loss (Debit Balance) (15,25,000) (15,25,000) Investments (75,00,000) - 90,40,000 1,65,40,000

13. Since Infosys Ltd. is incurring losses and no special resolution has been passed by the Company for paying remuneration, Managerial Remuneration will be calculated on the basis of Effective Capital of the Company. Therefore, the maximum remuneration payable to the Managing Director should be 60 Lakhs per annum.

14. Thank you