MANAGER 'S COMMISSION

 

The firm may have to pay commission to its manager based on the Profit for the year, calculated as a percentage of profit. Commission payable may be calculated either 

1. as a percentage of profit before charging such commission ; or

2. as a percentage of profit after charging such Commission.

The entries passed are :

Manager's Commission A/c.     Dr.

  To Commission Payable/ O/s commission

 ( Being the commission payable to Manager provided )

Profit and Loss A/c                    Dr 

  To Manager' s Commission A/c 

( Being the commission payable to manager is transferred to profit and loss A/c)

Commission payable is a current liability and shown in the Balance Sheet .

When Commission is payable as a percentage of profit before charging such commission:  In this case , commission payable is calculated by applying the rate of commission on the amount of profit . For example , Profit earned by the firm is Rs 80,000 , commission payable is @ 5% of profit . Commission Payable will be 5% of 80,000, i.e., Rs 4000 . Profit Rs 76,000.

When Commission is payable as a percentage of profit after charging such commission :  It means commission payable should be calculated on the Profit remaining after commission . Thus , if the rate of the commission is 5% and the profit remaining after commission is Rs 100 , then the profit before commission should be Rs105 . Thus , commission of Rs 5 should be out of every  Rs 105 of profit before commission .