Managerial Remuneration

Managerial remuneration:

• Top level management like director and manager is known as managerial  person.

• Salary,bonus,commission And other benefits (other than director’s fee) is known as remuneration.

• Such remuneration give by company to his managerial person is known as managerial remuneration.

Maximum managerial remuneration:

• Maximum limit of remuneration payable by company to his managerial person, is known as maximum managerial remuneration.
• This provision does not apply on private company

• Remuneration give within limits required permission of remuneration committee

• If is given by more than maximum limits then permission of central government is required to obtain.

•  For the purpose of calculation of maximum remuneration ,company classified into two categories:

1)    Company having adequacy of profits
2)   Company having inadequate profits or incurring loss.

·      Calculation of maximum managerial remuneration in case of adequate profits:

1). For whole time director (WTD) -:

• If only 1 WTD -: (5% OF PROFIT)

• If > 1 WTD -: (10%OF PROFITT)

2). For Part time Director (PTD) -:

• If no WTD in Company -: (3% of Profit)
• If WTD also exist in Company -: ( 1% OF PROFIT)

                Overall max. 11% of Profit.

NOTES -:

1.  Managing director will be considered as whole time director of the company.
2.   Here profits means profit calculated u/s 349 & 350 of the company act.which is calculated in following manner:

·      Following income all other revenue & income shall be included in calculation Of profits.

     i. Capital nature profit on sale of fixed assets :

a.     Excessive part of sale value over cost of fixed assets is known as capital profit on sale of fixed assets.

b.     Profit by sale of fixed assets up to a cost as known as revenue nature profit.

ii. Revenue profit is considered in cal. Whereas capital profit will not be    considered.
iii. Balance of share forfeited after reissue of share.
iv. Balance of security premium account.
v. Any other capital nature profit excluding subsidy from government.

·       Except following expenses& losses all other expenses & losses need to be deducted In calculation of profit:

1. Managerial remuneration provided in books (director fee is deducted).
2. Income tax & wealth tax (VAT , Service Tax, Excise Duty, Custom Duty) is deducted.
3. Depreciation provided in books (Depreciation as per schedule 14) is deducted.
4.  Proposed dividend.
5.  Transfer to reserve.
6.   Intangible & fictitious assets written off.
7.  Compensation damages or claim paid voluntary (If given due to contract) then deducted.
8. Excess provision for expenses.

·      if depreciation as per schedule 14 is not given separately , then it will be assumed equal to depreciation as per rule.

 Calculation of maximum managerial remuneration in case of    inadequacy of profits or company incurring losses:-

 Effective table maximum monthly Remuneration without special resolution*

Less 1 crore	75000
1 crore or more but less than 5 crores	100000
5 crores or more but less than 25 crore	125000
25 crores or more but less than 50 crores	150000
50 crores or more but less than 100 crores	175000
100 crores or more but less than	200000

  * Double the max. monthly RemUNERETION If special resolution is passed.

N.B:-

1.)Effective capital includes:

Paid up equity share capital (excluding app. money received pending  allotment)

+ Paid up pref. share capital          (“ “ “ “ “ “)

+ Reserve & surplus

+ Debentures

+ Long term loans

+ Other long term debts(excluding loan taken for working capital        requirements for example: cash credit limit)

Less -: Fictitious assets

Less -: Non trade investments

                =Effective capital

2.) In absence of information investment is prepared as non-trade investment.

Read more »

Insurance Claim

 Insurance mean monetary protection against various kind of future risk.

 Classification of Insurance-: 

1.   Life Insurance -: It is manetary protection in case of death of a individual.
2. General Insurance -: It covers remaining all type of insurance like Fire,Theft, Mediclaim, Accidental Insurance etc.

Types of Policy -:

         A.     Loss of stock policy/Fire insurance policy. 

         B.      Loss of profit policy/Consequential claim policy.

•  Loss of stock policy/ fire insurance policy -:

In case of loss of stock due to fire following steps involved for calculation of amount of claim -:

STEP 1 -: Prepare trading account for previous financial year for calculation of                  GROSS PROFIT RATE; if it is not given -:

       Gross Profit Rate  =  GROSS PROFIT / SALES X 100

                                           

                       (+) (-) Trend in Gross Profit Rate.

STEP 2 -: Memorandum trading account for current year- :

•   From the beginning of current year to date of fire.
•   Disclose Gross profit by applying Gross Profit Rate on current year sales.
•   Determine closing stock as balance figure item from trading account. 
•   Such closing stock is known as stock on date of fire.

STEP 3 -: Calculation of loss of stock -:

       Stock on date of fire                                                                   XXXX

      LESS -: Value of salvage stock on date of fire                            XXXX

        Loss of stock                                                                              XXXX

STEP 4 -: Calculation of Net Amount Of Claim -: 

        1). If no average clause is applied -:

                              NET CLAIM = LOSS OF STOCK                                       

    NOTE-: In case of under insurance without average clause, claims is restricted to actual loss or sum insured whichever is less.

   2). If average clause is applied -:

              Net Claim    =       Policy Value/ Insurable amount  X  loss of stock

Ø  To Change rate of profit -:

                    =  Gross Profit rate on cost / 100+Gross Profit rate on cost X 100

·         Treatment of abnormal stock -:

Ø  Part of stock which can not be sold out according to normal gross profit rate    than it is known as abnormal stock.

Ø  Such  stock will be sold below cost or at cost price or more than cost but exatlly not according to gross profit rate.

Ø  It is due to poor selling line or damaged stock or any other reason.

·         Treatment in will be as follows -:

                         I.            Adjust in trading a/c of previous year if gross profit rate is not given.

·         Convert the stock into actual cost and than disclosed it in trading a/c.

                       II.            Adjust in current year Memorandum trading a/c.

·         Disclose detail of normal stock & abnormal stock separately in the tabular format.

                                 Memorandum Trading Account (Begining to Date of Fire)

Particulars	Normal	Abnormal	Particulars	Normal	Abnormal
To Opening stock  To Purchase a/c To Direct Exp. a/c To Gross Profit a/c	xxxx   xxxx   xxxx ( G/P rate)	xxxx    -----    ----- (given info.)	By Sales a/c By Gross Loss a/c By Closing Stock a/c (B/F)	xxxx     ----    xxxx	xxxx                 (given info.)     xxxx
	XXXX	XXXX		XXXX	XXXX

Ø  Average Clause  -:

·         Situation of “Under Insurance”.

·         When stock on date of fire > Policy amount or Insurance Claim.

·         Policy Value = Insured amount.

·         Insurable Amount = Stock on date of fire.

·         Proportionate claim is given out of loss of stock in proportion of insured amount and insurable amount.

Ø  Loss of profit policy ( consequential claim policy)  -:

·         Loss of profit after occurrence of fire in the business it will get disturb for certain period because of time required for re-organization of business.

·         During such disorganization period business is not able to generate revenue in normal cause

·         Short sales will results loss of profits.

·         Policy taken for safe-guard of such loss or profit as known as loss of profit policy

      Its covers following plans -:

o   Claims for loss of profit.

o   Claims for Unavoidable fixed cost.

o   claims for additional exp. incured.

Steps for calculation of claim -:

STEP 1 -: Calculate Gross profit rate if not given -:

              

              Gross profit rate =      Net Profit + Insured standing charge/sales  X 100

•   Add or less Increase & Decrease in G.P. Rate
•   All the date for calculation of GPR will be taken for Previous financial year.

                        +/- Trend in Gross Profit Rate.

 STEP 2 -: Calculation of Short Sales -:

           

                                   I.            Sales in the previous year corresponding indemnity period           xxxx

                                 II.            +/- Increase or Decrease trend in sales                                       xxxx

                               III.            Expected sales in indemnity period                                              xxxx

                              IV.            Less – Actual sales in indemnity period                                        xxxx

                                 Short Sales                                               XXXX

STEP 3 -: Calculation of loss of Profit -:

                     Loss of profit = Short sales x Gross Profit Rate.

STEP 4 -: Calculation of Admissible Expenses  -:

                              I.        Actual additional expenses                                                                    xxxx

                            II.       Gross profit on sales in indemnity period due to additional exp.           xxxx 

             

              III. Additional Exp.  X  G.P. on adjusted turnover 

                                               ___________________________________________  

                                              G.P on adjusted turnover + uninsured st charge    

                                        

                           OR                                                                                xxxx    

                    

                Additional Exp X  Net profit + Insured Standing

                                            _______________________________                                     

                                            Net Profit + Total Standing  

                                                                                   

                                               Whichever is less in (i,ii,iii)                                  xxxxx

STEP 5 -: Calculation of Gross Claim -:

                     I.      Loss of profit                                                               xxxx

                   II.      Admissible Expenses                                                  xxxx

            Less -: Saving in Expenses                                            xxxx

                                                     Gross Claim                           xxxx

STEP 6 -: Calculation of Net Claim -:

     A.  If Average Clause not applied -:

         Net Claim  =    Gross Claim 

B.  If Average clause is applied  -:                                                                                        

   Net Claim = Policy Value/ insurable amount or g.p. on adj. turnover x Gross Claim

NOTE 1 -:

A.      Indemnity Period -: From date of fire to re-establishment of business.

B.      Annual Turnover -: 12 months sales just preceding date of fire.

C.      Adjusted or Standred Turnover -:

                                               Annual Turnover                                         XXXX

                                    +/- Increase & decrease trend in sales                  XXXX

                                Adjusted or standred Turnover                                  XXXX

D.     Gross Profit on Adjusted Turnover -:

          Adjusted Turnover x Gross Profit Rate

·         it is also known as insurable amount.

E.      Standing or Fixed cost -:

·         Cost which is to be incurred irrespective of amount of sales is known as standing or fixed cost.

·         Part of the fixed cost which is covered through policy is known as insured standing cost and not covered by policy as known as uninsured standing cost/charge.

F.       Additional Expenses -:

·         Expenses which is inured for temporary arrangement to run the business during indemnity period, is known as additional Expenses.

·         Part of such Expenses which is reimbursable by insurance company is known as admissible expenses.

·         Unless specifically given entire amount of sales during indemnity period will be assume due to additional expenses.

NOTE 2 -: Adjusted turnover or standred turnover

·         Generally standred turnover is trend adjusted amount of annual turnover.

·         However in the same special cases it is calculated in following manner.

1.      If part of annual turnover for current year sales is not separately determinable -:In such case adjusted the entire amount of annual turnover with    increasing or decreasing trend of sales in order to calculation adjusted turnover.

2.      If current year sales out of annual turnover is separately determinable -:

     In such case adjust with trend only that part of annual turnover which related to previous year and part of annual turnover which relates to current year will not be trend adjusted because it is already trend adjusted.

NOTE 3 -: Trend in sales -:

1.    If already given in question. (Use as it is)

2.    If not given in question.

                      I.        If same period sales is available for different year (must be normal period) calculate trend in sales by using sales data for that period sales of different year.

                    II.        If same period sales is not available than ignore trend in sales.

NOTE 4 -: Average clause will apply only when -:

   Policy value or Sum insured  < Insurable amount or G.P. on adjusted or

                                                                         standred turnover

Journal entries for loss of stock by fire -:

·         When stock destroyed by fire -:

               Loss by fire a/c Dr.         (with cost of stock destroyed)                   

                     To Purchase a/c       (with cost of stock destroyed)

·         Settlement of stock destroyed -:

      Insurance company a/c Dr. (for claim lodge against insurance co.)

       P&L      A/c                   Dr.  (uninsured part out of total loss)

                         To Loss by fire A/c      (Total stock destroyed)

·         Receiving claim from insurance company -:

                Bank  A/c   Dr.  

                   To  Insurance company A/c

·         Short fall of claim -:

           P&L A/c Dr.

                To Insurance company A/c

Read more »