Law relating to calculation of managerial remuneration
Answers
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 CSR also. 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 forBad 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 between original cost and WDV should not be deducted) xxxx
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.