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How To Calculate Net Profit For Managerial Remuneration

To calculate net profit for managerial remuneration under the Companies Act 2013: 1) Start with profit before tax from the P&L statement and add back expenses like managerial remuneration, bad debts, asset losses, and provisions that were deducted. 2) Deduct certain income items like capital profits, investment profits, and write backs that were added. 3) The resulting net profit amount is used to determine the maximum allowable managerial remuneration under the Act. Permission from the central government is needed if actual remuneration exceeds this limit.

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4K views3 pages

How To Calculate Net Profit For Managerial Remuneration

To calculate net profit for managerial remuneration under the Companies Act 2013: 1) Start with profit before tax from the P&L statement and add back expenses like managerial remuneration, bad debts, asset losses, and provisions that were deducted. 2) Deduct certain income items like capital profits, investment profits, and write backs that were added. 3) The resulting net profit amount is used to determine the maximum allowable managerial remuneration under the Act. Permission from the central government is needed if actual remuneration exceeds this limit.

Uploaded by

sonika7
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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How to Calculate Net Profit for Managerial Remuneration

As per companies act the net profit we arrive at in financial statements say statement of
financial performance (P&L statement) should not be used for calculating the
remuneration payable to directors. Now the companies act 2013 made it mandatory to
consider the net profit calculated u/s 198 of the act for CSRalso. Here I’m going to discuss
some lines about Calculation of net profit for managerial remuneration.

Profit before tax as per P&L Statement xxxxxxx

Add the following items if debited to P&L Statement before arriving profit before tax xxxx

Managerial remuneration xxxx

Provision for Bad doubtful debts xxxx

Loss on sale/disposal/discarding of assets. xxxx

Loss on sale of investments xxxx

Provision for diminution in the value of investments xxxx

fixed assets written off xxxx

Fall in the value of foreign currency monetary assets xxxx

Loss on cancellation of foreign exchange contracts xxxx

Write off of investments

Provision for contingencies and unascertained liabilities xxxx


Lease premium written off xxxx

Provision for warranty spares/supplies xxxx

Infructuous project expenses written off xxxx

Provision for anticipated loss in case of contracts xxxx

Loss on sale of undertaking xxxx

Provision for wealth tax xxxx

compensation paid under VRS xxxx

Less the following if credited to P&L statement for arriving at profit before tax: xxxx

Capital profit on sale/disposal of fixed assets(the same should be added if the co., business
comprimises of buying & selling any such property or asset) and revenue profit (difference xxxx
between original cost and WDV should not be deducted)

Profit on sale of any undertaking or its part xxxx

Profit on buy back of shares xxxx

Profit/discount on redemption of shares or debentures xxxx

Profit on sale of investments xxxx

Compensation received on non-compete agreements xxxx

Write back of provision for doubtful debts xxxx


Write back of provision for doubtful advances xxxx

Appreciation in value of any investments xxxx

Compensation received on surrender of tenancy rights xxxx

Profit on sale of undertaking xxxx

Write back of provision for diminution in the value of investments xxxx

Profit on sale of forfeited shares & shares of subsidiary/associated companies xxxx

After calculating the profit as said above the limits specified in the act in respect of managerial
remuneration can be applied to know the maximum allowable remuneration.
If the actual remuneration is more than maximum allowable remuneration then we can the
permission of Central Government should be obtained.

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