Interest to the allowed @.75 percent p.m. on partners capital of ₹ 60 lakh. Managers commission @ 5% of net profit after charging such commission. If the net profit before charging interest on capital and managers commission amounted to ₹ 14.85 lakh. Then managers commission will be :

Question

Accepted Answer

The correct option is 2:

The calculation of the Manager's Commission requires two essential steps, as it is a charge based on a net profit figure that is itself reduced by another charge (Interest on Capital). First, we must correctly determine the amount of Interest on Capital (IOC) on the partners' capital, which is ₹ 60 lakh at 0.75% per month. The annual IOC is 0.75% \* 12 months = 9% of ₹ 60,00,000, which equals ₹ 5,40,000. Second, we find the profit base for the commission: Net Profit before Commission = ₹ 14,85,000 - ₹ 5,40,000 = ₹ 9,45,000. Since the commission is 5% of the net profit *after* charging such commission, the correct accounting formula must be used: Commission = Profit before Commission x (Rate / (100 + Rate)). Therefore, the Manager's Commission is ₹ 9,45,000 \* (5 / 105), which precisely yields ₹ 45,000.

The incorrect option is 1:
The option of ₹ 74,250 is incorrect because it fails to deduct the Interest on Capital before calculating the commission. If a student simply calculated 5% of the original profit of ₹ 14,85,000, they would arrive at ₹ 74,250. This ignores the sequence of deductions mandated by the problem, where IOC is a prior charge. Furthermore, this calculation incorrectly uses the "before charging commission" formula (Rate/100) on the original profit. In this scenario, the commission should be calculated on the profit after IOC, leading to an entirely different base figure.

The incorrect option is 3:
The figure ₹ 47,250 is arrived at by calculating 5% of the profit base (₹ 9,45,000) but incorrectly using the formula for commission *before* charging such commission. Specifically, this is the result of ₹ 9,45,000 \* (5/100). The question explicitly states that the commission is a percentage of the net profit *after* charging such commission, which necessitates the use of the denominator (100 + Rate). Ignoring this crucial accounting principle leads to an overstatement of the commission and is a fundamental error in applying the commission formula.

The incorrect option is 4:
The amount ₹ 94,250 is a result of one or more major computational errors that drastically inflate the final figure. One possible mistake leading to a value close to this is if a student incorrectly calculated the commission as a percentage of the original profit (₹ 14,85,000) and then perhaps added or multiplied the commission by a significant factor. A commission of this magnitude would represent approximately 6.35% of the *original* profit, but the rate is stated as 5% of a *much smaller* final profit base. This option shows a clear misunderstanding of how the Interest on Capital deduction impacts the commission base.