LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

Calculation of effective capital and profit/loss

Sourav Chatterjee (Management Trainee) (171 Points)

22 March 2012

Is the deposit accepted by Company from dealer will come under the calculation of effective capital as per schedule xiii of the Companies Act 1956? Please provide me the format of calculation of profit/loss as per section 198 of the Companies Act 1956.

Reply
Follow
Share

6 Replies

Sonam Bidasaria (CA) (770 Points)
Replied 22 March 2012

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.

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 22 March 2012

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

1 Like

Sourav Chatterjee (Management Trainee) (171 Points)
Replied 22 March 2012

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

N Giridar (ACA, CS Final Student) (151 Points)
Replied 23 March 2012

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.