Manager Commission Adjustment in Final Accounts

  

Adjustments given below trial balance must be adjusted for final account.

Adjustment entry means not adjusted while preparing trial balance.

It is also known additional information.

Almost all the adjustment entry effects dual aspect.

One is debit and other is credit. 

There are a number of adjustments to be made while finalizing the financial statements.

But our discussion will be limited to the following adjustments (limited by the curriculum):  

 

Major Adjustments in Final Accounts

Closing stock Outstanding expenses Prepaid expenses Accrued income or income receivable   Advance income or unearned income Depreciation on assets Appreciation on assets Written off or amortized Purchase or sale of fixed assets Bad debts, provision and discount Bad debts recovered

Goods loss by fire and insurance claim Goods distribute as free sample Manager’s commission Bonus or pension to employees Create reserve or fund  Goods sold on sale or return basis Hidden adjustment: (a) Interest on loan or debenture (b) Interest on investment (c) Monthly rent and salary

 

Managerial Remuneration and Commission

The managing director or directors who involves in day to day functioning of the company can get remuneration for their service.

The amount of remuneration should be specified in articles of association. 

According to Company Act, the general meeting of company may grant a reward (commission) in a sum not exceeding 3% of net profit after tax.

It is paid the directors who work full time for the company to encourage them.

 

Applied in Final Accounts

If managers’ commission is paid before preparation of trial balance, it should be debited to profit and loss account.

But, if such commission is outstanding to pay, it debited in profit and loss account and is shown in liability side of balance sheet.

There are two ways to calculation of commission.

First is net profit before charging such commission and secondly on the basis of net profit after charging such commission.

Commission before charged          = Difference of Dr and Cr x (% ÷ 100)  

Commission after charged             = Difference of Dr and Cr x [% ÷ (100+%)]  

Keep in Mind (KIM)

According to Company Act, the general meeting of shareholders may grant a commission In a sum not exceeding 3% of net profit after tax to the directors who work full time for the company. Commission and incentive helps to increase work efficiency to the employees.

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

ADJUSTMENT: 14A

The following information of EP Company Ltd is provided to you for year ended 31^st December:

Net profit before manager’s commission $/₹/Rs 800,000

Additional information:

Manager’s commission for the year is decided 3% of net profit before charging

Required: Adjustment entries and effect in final account

 

Journal Entries

Date	Particulars		LF	Amount	Amount
	Manager’s commission account           To Outstanding commission account  (Being- commission payable to manager Rs 800,000 @ 3%)	Dr		24,000	24,000

 

Profit and Loss Account

Particulars		Amount	Particulars	Amount
To Outstanding manager’s comm.		24,000

 

Balance Sheet

Liabilities	Amount	Assets		Amount
Current liabilities: Outstanding manager’s comm.	24,000

 

###########

Click on link for YouTube videos

ACCOUNTING EQUATION http://tiny.cc/c89jkz

BASIC JOURNAL ENTRIES IN NEPALI http://tiny.cc/uaakkz

BASIC JOURNAL ENTRIES http://tiny.cc/8aakkz

JOURNAL ENTRY AND LEDGER http://tiny.cc/caakkz

LEDGER http://tiny.cc/haakkz

SUBSIDIARY BOOK http://tiny.cc/399jkz

CASH BOOK http://tiny.cc/889jkz

TRIAL BALANCE & ADJUSTED TRIAL BALANCE http://tiny.cc/c59jkz

 

BANK RECONCILIATION STATEMENT (BRS) http://tiny.cc/q59jkz

DEPRECIATION http://tiny.cc/ugakkz

FINAL ACCOUNT: CLASS 11 http://tiny.cc/y89jkz

ADJUSTMENT IN FINAL ACCOUNT http://tiny.cc/keakkz

CAPITAL AND REVENUE http://tiny.cc/peakkz

SINGLE ENTRY SYSTEM http://tiny.cc/n19jkz

NON-PROFIT ORGANIZATION (NON-TRADING CONCERN http://tiny.cc/j09jkz

GOVERNMENT ACCOUNTING http://tiny.cc/hcakkz

GOSWARA VOUCHER (JOURNAL VOUCHER) http://tiny.cc/hcakkz

 

###########

 

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

ADJUSTMENT: 14B

The following information of PL Company is provided to you for year ended 31^st December:

Net profit before manager’s commission Rs 525,000.

Additional information:

Manager’s commission for the year is decided 5% of net profit after charging

Required: Adjustment entries and effect in final account

 

Journal Entries

Date	Particulars		LF	Amount	Amount
	Manager’s commission account    Dr           To Outstanding commission account  (Being- commission payable to manager Rs 525,000 x 5/105	Dr		25,000	25,000

 

Profit and Loss Account

Particulars		Amount	Particulars	Amount
To Outstanding manager’s comm.		25,000

 

Balance Sheet

Liabilities	Amount	Assets		Amount
Current liabilities: Outstanding manager’s comm.	25,000

 

***********

Thank you for investing your time.

Please comment on article.

You can help me by sharing this article at your social media platform.

 

Jay Google, Jay YouTube, Jay Social Media

जय गूगल, जय युट्युब, जय सोशल मीडिया