Depreciation to be provided for purposes of determining net profits for payment of managerial remuneration ‑ Certain queries arising from memorandum issued by Department answered - Companies Law - CLAS/24,

Circular No. CLAS/24, dated 27 ‑ 6 ‑ 1962 issued by the Indian Chamber of Commerce, Calcutta. Subject:- Depreciation to be provided for purposes of determining net profits for payment of managerial remuneration ‑ Certain queries arising from memorandum issued by Department answered Query : Section 350 defines the amount of depreciation to be deducted in pursuance of section 349(4)(k) from profits for determining the net profits on which managing agency commission is to be calculated. While mentioning the written down value it is stated that the amount of depreciation is to be calculated on the basis of the written down value of the assets as shown by the books of the company at the end of the financial year expiring at the commencement of this Act or immediately thereafter at the income‑tax rates. It is clarified that the commencement of this Act refers to the Companies (Amendment) Act, 1960 ? It should be further clarified that in cases of some companies where some block assets have been revalued by writing up the difference in a separate capital reserve account, the written down book value for the purpose of this section will be taken as the original cost and not the book value as enhanced by writing up. It is but fair and equitable since any depreciation on the amount of such revaluation as and when written off is chargeable to the capital reserve account to which the amount written up is credited at the time of revaluation of book assets and is not a charge on the working profits of the company. This would have been clearer if the phrase used was written down purchase price of the assets instead of written down value of the assets ? Answer : As regards the first paragraph of the query, the matter has been clarified in the Department s Circular No. 10(1)‑CL‑VI/61, dated 27‑9‑1961 [printed at Sl. No. 442] and the memorandum enclosed with it. As regards the second para of the query, this Department is advised that for the purpose in view the book value would be the enhanced amount resulting from the writing up of the assets. Such book value would be relevant only in the first financial year after the commencement of the Companies Act.