Effective Capital Calculator

Effective capital is a defined figure under Schedule V to the Companies Act, and it matters because the limits on managerial remuneration a company may pay without central government approval are expressed in bands of effective capital. A company that computes it wrongly can pay remuneration it was not entitled to pay.

The computation adds paid-up share capital, share premium, reserves and surplus, long-term loans and deposits repayable after a year. It then deducts investments, accumulated losses and preliminary expenses not written off.

A revaluation reserve is specifically excluded. That is the point most often missed: revaluing assets upwards does not increase effective capital, so it cannot be used to lift the remuneration a company may pay.

The figure is computed as at the last date of the previous financial year, or as at the date of appointment for a company that has not completed a financial year. Confirm the components against the Schedule for the year concerned before relying on the result.