​The manager of a firm is entitled to a commission of 5% of Net profit after charging such commission. Net profit before charging commission is ₹ 42,000. Calculate the Commission of Manager.

Correct option is B

The correct answer is (b) ₹2,000

Explanation:
• Formula when commission is on net profit after charging such commission:

​$$\text{Commission} = \frac{\text{Net Profit before commission} \times \text{Rate}}{100 + \text{Rate}}$$​​

• Substituting values:$$\frac{42,000 \times 5}{105} = ₹2,000$$​
​
• Therefore, the manager’s commission = ₹2,000.

Information Booster:
• When commission is on net profit before commission, it is calculated directly as:
Commission=Net Profit×Rate/100
• When it is after charging commission, denominator becomes (100 + Rate).
• Such commission is treated as an expense in the Profit & Loss Account.
• It is often given to reward managerial performance.
• Appears under indirect expenses in final accounts.

Additional Knowledge:
• If Net Profit before commission = ₹42,000, then Net Profit after commission = ₹40,000 (₹42,000 – ₹2,000).
• The term “after charging such commission” implies self-adjusted calculation.
• This adjustment ensures that the manager’s reward does not inflate reported profits.
• Commonly seen in partnership and corporate accounting scenarios.