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How to Calculate Net Profit for Managerial Remuneration

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 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 Statementxxxxxxx
Add the following items if debited to P&L Statement before arriving profit before taxxxxx
Managerial remunerationxxxx
Provision forBad doubtful debtsxxxx
Loss on sale/disposal/discarding of assets.xxxx
Loss on sale of investmentsxxxx
Provision for diminution in the value of investmentsxxxx
fixed assets written offxxxx
Fall in the value of foreign currency monetary assetsxxxx
Loss on cancellation of foreign exchange contractsxxxx
Write off of investments
Provision for contingencies and unascertained liabilitiesxxxx
Lease premium written offxxxx
Provision for warranty spares/suppliesxxxx
Infructuous project expenses written offxxxx
Provision for anticipated loss in case of contractsxxxx
Loss on sale of undertakingxxxx
Provision for wealth taxxxxx
compensation paid under VRSxxxx
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 partxxxx
Profit on buy back of sharesxxxx
Profit/discount on redemption of shares or debenturesxxxx
Profit on sale of investmentsxxxx
Compensation received on non-compete agreementsxxxx
Write back of provision for doubtful debtsxxxx
Write back of provision for doubtful advancesxxxx
Appreciation in value of any investmentsxxxx
Compensation received on surrender of tenancy rightsxxxx
Profit on sale of undertakingxxxx
Write back of provision for diminution in the value of investmentsxxxx
Profit on sale of forfeited shares & shares of subsidiary/associated companiesxxxx

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.

How to Calculate Net Profit for Managerial Remuneration

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