Calculation of effective capital and profit/loss

As per Explanation No - 1 given in Schedule XIII, deposits payable after one year shall be excluded from the scope of effective capital. Hence, you have to decide whether such deposits is payable within one yearor after 1 year.

MEANING OF THE "EFFECTIVE CAPITAL"

For the purpose of deciding remuneration payable to managerial persons in a company, the effective capital, which is the base for determining eligibility of remuneration, shall be calculated as on the last date of the financial year preceding the financial year in which the appointment is made.

For ascertaining the effective capital of a company for arriving at the maximum permissible remuneration, the following shall be considered and added:—

1. Paid-up share capital (excluding share application money and advances against shares);

2. Share premium account;

3. Reserves and surplus (excluding revaluation reserve); and

4. Long-term loans and deposits repayable after one year but excluding working capital loans, overdrafts, interest due on loans unless funded, bank guarantee and short-term arrangements.

The following amount shall be deducted:—

1. Investments (except in the case of investment company);

2. Accumulated losses;

3. Preliminary expenses not written off.

The net figure will be considered as the effective capital of a company. Where the appointment of the managerial person is made in the year in which the company has been incorporated, the effective capital shall be calculated on the date of such appointment on the abovesaid basis.

Now you are requested to figure out the nature of deposits in your company for answer.

Thanks

Thanks to all. Please provide me the format of calculation of profit/loss as per section 198 of the Companies Act 1956.

Originally posted by : Sondip Goswami
	Thanks to all. Please provide me the format of calculation of profit/loss as per section 198 of the Companies Act 1956.

The items to be included & excluded for the computation of profit/loss for Section 198 has been elaborated under Sections 349, 350(depreciation) & 351.

Thank you sir

As stated, while computing the Effective capital the amount of investments are excluded. Whether the term includes "Current Investments" as well?