{"id":25093,"date":"2023-05-15T16:43:28","date_gmt":"2023-05-15T11:13:28","guid":{"rendered":"https:\/\/gstguntur.com\/?p=25093"},"modified":"2023-05-15T17:22:14","modified_gmt":"2023-05-15T11:52:14","slug":"profit-or-loss-pre-and-post-incorporation-ca-inter-accounts-question-bank","status":"publish","type":"post","link":"https:\/\/gstguntur.com\/profit-or-loss-pre-and-post-incorporation-ca-inter-accounts-question-bank\/","title":{"rendered":"Profit or Loss Pre and Post Incorporation – CA Inter Accounts Question Bank"},"content":{"rendered":"

Profit or Loss Pre and Post Incorporation \u2013 CA Inter Accounts Question Bank<\/a> is designed strictly as per the latest syllabus and exam pattern.<\/p>\n

Profit or Loss Pre and Post Incorporation – CA Inter Accounts Question Bank<\/h2>\n

Question 1.
\nRama Udyog Limited was incorporated on August 1, 2008. It had acquired a running business of Rama & Co. with effect from April 1, 2008. During the year 2008-09, the total Sales were \u20b9 36,00,000. The Sales per month in the first half year were one-half of what they were in the later half year. The net Profit of the company, \u20b9 2,00,000 was worked out after charging the following expenses
\n(i) Depreciation \u20b9 1,08,000,
\n(ii) Audit fees \u20b9 15,000,
\n(iii) Directors\u2019 fees \u20b9 50,000,
\n(iv) Preliminary expenses \u20b9 12,000,
\n(v) Office expenses \u20b9 78,000,
\n(vi) Selling expenses \u20b9 72,000 and
\n(vii) Interest to vendors upto August 31, 2008 \u20b9 5,000.
\nPlease ascertain pre-incorporation and post-incorporation profit for the year ended 31st March, 2009. (6 marks)
\nAnswer:
\nStatement showing pre and post incorporation profit for the year ended 31st<\/sup> March, 2009
\n\"Profit<\/p>\n

Working Notes:
\n1. Sales ratio
\nThe sales per month in the first half year were half of what they were in the later half year. If in the later half year, sales per month is \u20b9 1 then it should be 50 paise per month in the first half year. So sales for the first four months (i.e. from 1st<\/sup> April, 2008 to 31st<\/sup> July, 2008) will be 4 \u00d7 0.50 = \u20b9 2 and for the last eight months (i.e. from 1st<\/sup> August, 2008 to 31st<\/sup> March, 2009) will be (2 \u00d7 0.50 + 6 \u00d7 1) = \u20b9 7. Thus sales ratio is 2:7.
\n2. Time Ratio
\n1st<\/sup> April, 2008 to 31st<\/sup> July, 2008 : 1st<\/sup> August, 2008 to 31st<\/sup> March, 2009 = 4 month : 8 month = 1:2
\nThus, time ratio is 1:2.
\n3. Gross Profit
\nGross profit = Net profit + All expenses
\n= \u20b9 2,00,000 + \u20b9 (1,08,000 +15,000 + 50,000 +12,000 +78,000 +72,000 + 5,000)
\n= \u20b9 2,00,000 + \u20b9 3,40,000
\n= \u20b9 5,40,000<\/p>\n

Question 2.
\nThe promoters of M\/s. Glorious Ltd. took over on behalf of the company a running business with effect from 1st<\/sup> April, 2012. The company got incorporated on 1st<\/sup> August, 2012. The annual accounts were made upto 31st<\/sup> March, 2013 which revealed that the sales for the whole year totaled
\n\u20b9 1,600 lakh out of which sales till 31st<\/sup> July, 2012 were for \u20b9 400 lakhs.
\nGross profit ratio was 25%.
\nThe expenses from 1st<\/sup> April 2012, till 31st<\/sup> March, 2013 were as follows:
\n: (\u20b9 in lakhs)
\nSalaries : 69
\nRent, Rates and Insurance : 24
\nSundry Office Expenses : 66
\nTravellers\u2019 Commission : 16
\nDiscounts Allowed : 12
\nBad Debts : 4
\nDirectors\u2019 Fee : 25
\nAudit Fee : 9
\nDepreciation on Tangible Assets : 12
\nDebenture Interest : 11
\nPrepare a statement showing the calculation of Profits for the pre-incorporation and post-incorporation periods. (May 2013, 8 marks)
\nAnswer:
\nStatement showing the calculation of Profits for the pre-incorporation and post- incorporation periods
\n\"Profit<\/p>\n

Working Notes:<\/p>\n

1. Sales Ratio
\n\"Profit<\/p>\n

2. Time Ratio
\n1st<\/sup> April, 2012 to 31 st July, 2012: 1 st August, 2012 to 31st<\/sup> March, 2013 = 4 months: 8 months = 1:2 Thus, time ratio is 1:2<\/p>\n

Audit fee has been assumed to be related with tax audit and therefore apportioned into pre and post-incorporation periods on the basis of Sales.<\/p>\n

\"Cash<\/p>\n

Question 3.
\nSneha Ltd. was incorporated on 1st<\/sup> July, 2013 to acquire a running business of Atul Sons with effect from 1st<\/sup> April, 2013. During the year 2013-14, the total sales were \u20b9 24,00,000 of which \u20b9 4,80,000 were for the first six months. The Gross profit of the company \u20b9 3,90,800. The expenses debited to the Profit & Loss Account included:
\n(i) Director\u2019s fees \u20b9 30,000
\n(ii) Bad debts \u20b9 7,200
\n(iii) Advertising \u20b9 24,000 (under a contract amounting to \u20b9 2,000 per month)
\n(iv) Salaries and General Expenses \u20b9 1,28,000
\n(v) Preliminary Expenses written off \u20b9 10,000
\n(vi) Donation to a political party given by the company \u20b9 10,000.
\nPrepare a statement showing pre-incorporation and post-incorporation profit for the year ended 31st<\/sup> March, 2014. (May 2014, 8 marks)
\nAnswer:
\nNote : Sale of 1st<\/sup> 6 months = 4,80,000
\nIt seems that it should be sale of 1st<\/sup> 3 months. Anyways we are solving, assuming that question is correct and sale of 4,80,000 is evenly spread even the 6 months.<\/p>\n

P\/L A\/c for the year(2013-2014)
\n\"Profit<\/p>\n

Working Notes:
\n1.
\n\"Profit
\nSales Ratio = 24:216 = i.e. 1:9
\n2. Paid by Co. hence full amount is post incorporation period.
\n3. In sales Ratio (24:216) Pre = 7,200 \u00d7 \\(\\frac{24}{240}\\) = 720
\nPost = 7,200 \u00d7 \\(\\frac{216}{240}\\) = 6,480
\n4. Since it is monthly basis hence distributed on time basis
\nPre = 3 \u00d7 2,000 = 6,000
\nPost = 9 \u00d7 2,000 = 18,000
\n5. On time Basis : Pre = 1,28,000 \u00d7 3\/12 = 32,000
\nPost = 1,28,000 \u00d7 9\/12 = 96,000
\n6. Full Preliminary Expense should be in the post incorporation period.
\n7. Donation is given by the Company, Hence full amount is changed to post incorporation period.<\/p>\n

Question 4.
\nThe partners Kamal and Vimal decided to convert their existing partnership business into a Private Limited Company called M\/s. KV Trading Private Ltd. with effect from 1-7-2014.
\nThe same books of accounts were continued by the company which closed its account for first term on 31-3-2015.
\nThe summarized Profit and Loss Account for the year ended 31-3-2015 is below:
\n\"Profit
\nThe following additional information was provided
\n(i) The average monthly sales doubled from 1 -7-2014. GP ratio was constant.
\n(ii) All investments were sold on 31-5-2014.
\n(iii) Average monthly salary doubled from 1 -10-2014.
\n(iv) The company occupied additional space from 1-7-2014 for which rent of \u20b9 20,000 per month was incurred.
\n(v) Bad debts recovered amounting to \u20b9 50,000 for a sale made in 2012, has been deducted from bad debts mentioned above.
\n(vi) Audit fees pertains to the company.
\nPrepare a statement apportioning the expenses between pre and post incorporation periods and calculate the Profit\/Loss for such periods.
\nAlso suggest how the pre-incorporation profits are to be dealt with. (May 2015, 10 marks)
\nAnswer:
\nK V Trading Private Limited
\nStatement showing calculations of profit\/loss for pre and post incorporation periods
\n\"Profit
\n\"Profit<\/p>\n

*Note: \u20b9 18.79 lakhs, pre-incorporation profit is a capital profit and will be transferred to Capital Reserve.
\nWorking Notes:
\n1. Calculation of Sales Ratio
\nLet the average sales per month be x
\nTotal sales from 01.04.2014 to 30.06.2014 will be 3x
\nAverage sales per month from 01.07.2014 to 31.03.2015 will be 2x
\nTotal sales from 01.07.2014 to 31.03.2015 will be 2x \u00d7 9 = 18x
\nRatio for division 3x: 18x or 1 : 6<\/p>\n

2. Apportionment of Salary
\nLet the salary per month from 01.04.2014 to 30.09.2014 is x
\nSalary per month from 01.10.2014 to 31.03.2015 will be 2x
\nHence, pre incorporation salary (01.04.2014 to 30.06.2014) = 3x
\nPost incorporation salary from 01.07.2014 to 31.03.2015 = (3x + 12x) i.e.15x
\nRatio for division 3x: 15x or 1 : 5<\/p>\n

3. Apportionment of Rent
\n\"Profit<\/p>\n

4. Calculation of time Ratio
\n3 Months : 9 Months i.e. 1 : 3<\/p>\n

\"Cash<\/p>\n

Question 5.
\nSALE Limited was incorporated on 01.08.2014 to take-over the business of a partnership firm w.e.f.01.04.2014. The following is the extract of Profit and Loss Account for the year ended 31.03.2015:
\n\"Profit
\n(i) SALE Limited initiated an advertising campaign which resulted increase in monthly average sales by 25% post incorporation.
\n(ii) The Gross profit ratio post incorporation increased to 30% from 25%.
\nYou are required to apportion the profit for the year between pre-incorporation and post-incorporation, also explain how pre-incorporation profit is treated in the accounts. (Nov 2015, 8 marks)
\nAnswer:
\nIn the books of Sale Ltd. Profit & Loss A\/c
\n\"Profit
\n\"Profit<\/p>\n

Working Notes:<\/p>\n

1. Gross profit ratio
\nFrom 1.4.2014 to 31.7.2014 gross profit is 25% of sales
\nThen, 25% of 4x = 1x
\nGross profit for next 8 months (i.e. from 1.8.2014 to 31.3.2015) is 30%
\nThen, 30% of 10x = 3x
\nTherefore gross profit ratio will be 1: 3<\/p>\n

2. Time ratio
\n1st<\/sup> April, 2014 to 31st<\/sup> July, 2014 : 1st<\/sup> August, 2014 to 31st<\/sup> March, 2015 = 4 months : 8 months = 1:2
\nThus, time ratio is 1: 2.<\/p>\n

3. Sales ratio
\nLet the monthly sales for first 4 months (i.e. from 1.4.2014 to 31.7.2014) be = x
\nThen, sales for 4 months = 4x
\nMonthly sales for next 8 months (i.e. from 1.8.2014 to 31.3.2015)
\n= x + 25% of x = 1.25x
\nThen, sales for next 8 months = 1.25x x 8 = 10x
\nTotal sales for the year = 4x + 10x = 14x
\nSales Ratio = 4x : 10x i.e. 2:5.<\/p>\n

Question 6.
\nRoshani & Reshma working in partnership, registered a joint stock company under the name of Happy Ltd. on May 31st<\/sup> 2016 to take over their existing business. The summarized Profit & Loss A\/c as given by Happy Ltd. for the year ending 31st<\/sup> March, 2017 is as under:<\/p>\n

Happy Ltd.
\nProfit & Loss A\/c for the year ending March 31, 2017
\n\"Profit
\nPrepare a Statement showing allocation of expenses & calculation of pre-incorporation & post-incorporation profits after considering the following information:
\n(i) GP ratio was constant throughout the year.
\n(ii) Depreciation includes \u20b9 1,250 for assets acquired in post incorporation period.
\n(iii) Bad debts recovered amounting to \u20b9 14,000 for a sale made in 2013-14 has been deducted from bad debts mentioned above.
\n(iv) Total sales were \u20b9 18,00,000 of which \u20b9 6,00,000 were for April to September.
\n(v) Happy Ltd. had to occupy additional space from 1st Oct. 2016 for which rent was \u20b9 2,400 per month. (May 2017, 8 marks)
\nAnswer:
\nA statement showing calculation of pre & post incorporation profit
\n\"Profit<\/p>\n

Working Notes:
\n\"Profit
\n\"Profit<\/p>\n

Question 7.
\nThe promotors of Shiva Ltd. took over on behalf of the company a running business with effect from 1st<\/sup> April 2017. The company got incorporated on 1st<\/sup> August 2017. The annual accounts were made up to 31st<\/sup> March, 2018 which revealed that the sales for the whole year totalled \u20b9 2400 lakhs out of which sales till 31st<\/sup> July, 2017 were for \u20b9 600 lakhs. Gross profit ratio was 20%.
\nThe expenses from 1st<\/sup> April 2017, till 31st<\/sup> March, 2018 were as follows:<\/p>\n

Particulars : \u20b9 in Lakhs
\nSalaries : 75
\nRent, Rates and Insurance : 30
\nSundry Office Expenses : 72
\nTraveller\u2019s Commission : 20
\nDiscount allowed : 16
\nBad Debts : 8
\nDirectors Fee : 30
\nTax Audit Fee : 16
\nDepreciation on Tangible Assets : 15
\nDebenture Interest : 14
\nPrepare a statement showing the calculation of profits for the pre-incorporation and Post incorporation periods. (May 2018, 10 marks)
\nAnswer:
\nStatement showing the calculation of Profits for the Pre-incorporation and Post-incorporation periods:
\n\"Profit<\/p>\n

Working Notes :<\/p>\n

1. Sales Ratio:<\/p>\n\n\n\n\n\n
<\/td>\n(\u20b9 in lakh)<\/td>\n<\/tr>\n
Sales for the whole year
\nSales up to 31st<\/sup> July, 2017<\/td>\n		2,400
\n600<\/td>\n<\/tr>\n
Therefore, sales for the period from 1st <\/sup>August, 2017 to 31st<\/sup> March,’ 2018<\/td>\n1,800<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Thus, Sales Ratio = 600 : 1800 = 1 : 3<\/p>\n

2. Time Ratio:
\n1st<\/sup> April, 2017 to 31st<\/sup> July, 2017 : 1st<\/sup> August, 2017 to 31st<\/sup> March, 2018 = 4 months : 8 months = 1 : 2
\nThus, time ratio is 1 : 2<\/p>\n

\"Cash<\/p>\n

Question 8.
\nTarun Ltd. was incorporated on 1st<\/sup> July, 2018 to acquire a running business of Vinay Sons with effect from 1st<\/sup> April, 2018. During the year 2018-19, the total sales were \u20b9 12,00,000 of which \u20b9 2,40,000 were for the first six months. The Gross Profit for the year is \u20b9 4,15,000. The expenses debited to the Profit and Loss account included:
\n(i) Directors fees \u20b9 25,000
\n(ii) Bad Debts \u20b9 6,500
\n(iii) Advertising \u20b9 18,000
\n(under a contract amounting to \u20b9 1,500 per month)
\n(iv) Company Audit Fees \u20b9 15,000
\n(v) Tax Audit Fees \u20b9 10,000
\n1. Prepare a statement showing pre-incorporation and post-incorporation profit for the year ended 31st<\/sup> March, 2019.
\n2. Explain how profits are to be treated. (May 2019, 5 marks)
\nAnswer:
\nStatement showing the calculation of Profits for the pre-incorporation and post-incorporation periods for the year ended 31st<\/sup> March 2019:
\n\"Profit<\/p>\n

Working Notes:<\/p>\n

1. Sales Ratio<\/p>\n\n\n\n\n
Particulars<\/td>\n\u20b9<\/td>\n<\/tr>\n
Sales for period upto 30\/06\/18 (\u20b9 2,40,000 \u00d7 3\/6)<\/p>\n

Sales from 1\/7\/18 to 31\/3\/19 (\u20b9 12,00,000 – \u20b9 1,20,000)<\/td>\n

1,20,000<\/p>\n

10,80,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Thus sales Ratio = 1 : 9<\/p>\n

2. Time Ratio:
\n1st<\/sup> April, 2018 to 30th<\/sup> June 2016: 1st<\/sup> July 2018 to 31st<\/sup> March 2019
\n= 3 months = 9 months = 1: 3
\nThus, Time Ratio = 1 : 3<\/p>\n

Question 9.
\nThe partners of C&G decided to convert their existing partnership business into a private limited called CG trading Pvt. Ltd. with effect from 1.7.2018. The same books of accounts were continued by the company which closed its accounts for the first term on 31.3.2019.
\nThe summarized profit & loss account for the year ended 31.3.2019 is below:
\n\"Profit
\nThe following additional information was provided:
\n(i) The average monthly sales doubled from 1.7.2018, GP ratio was constant.
\n(ii) All investments were sold on 31.5.2018.
\n(iii) Average monthly salaries doubled from 1.10.2018.
\n(iv) The company occupied additional space from 1.7.2018 for which rent of \u20b9 20,000 per month was incurred.
\n(v) Bad debts recovered amounting to \u20b9 60,000 for a sale made in 2016-17 has been deducted from bad debts mentioned above.
\n(vi) Audit fees pertains to the company.
\nPrepare a statement apportioning the expenses between pre and post incorporation periods and calculate the profit\/ loss for such periods. (Nov 2019, 10 marks)
\nAnswer:
\nCG Trading Pvt. Ltd.
\nStatement showing calculation of Profit \/ Loss for Pre and Post Incorporation Period.
\n\"Profit<\/p>\n

Working Notes :
\n1. Calculation of Sales Ratio :
\nLet the average sales per month be x
\nTotal sales from 01\/04\/2018 to 30\/06\/2018 will be 3x
\nAverage sales per month from 01\/07\/2018 to 31\/03\/2019 will be 2x
\nTotal sales from 01 \/07\/2018 to 31 \/03\/2019 will be 2x \u00d7 9 = 18x
\nRatio of sales will be 3x:18x i.e., 3:18 or 1:6<\/p>\n

2. Calculation of Time Ratio:
\n3 Months : 9 Months i.e., 1:3<\/p>\n

3. Apportionment of Salaries :
\nLet the Salary per month from 01\/04\/2018 to 30\/09\/2019 is x salary per month from 01\/10\/2018* to 31\/03\/2019 will be 2x. Hence, pre incorporation salary (1\/4\/2018 to 30\/06\/2018) = 3x Post incorporation salary from 01 \/07\/2018 to 31 \/03\/2019 = (3x + 12x) i.e. 15x Ratio for division 3x : 15x or 1:5<\/p>\n

4. Apportionment of Rent:
\n\"Profit<\/p>\n

Question 10.
\nMoon Ltd. was incorporated on 1st<\/sup> August, 2019 to take over the running business of a partnership firm w.e.f 1st<\/sup> April, 2019. The summarized Profit & Loss Account for the year ended 31st<\/sup> March, 2020 is as under:
\n\"Profit
\nNet profit for the year
\nMoon Ltd. initiated an advertising campaign which resulted in increase of monthly sales by 25% post incorporation.
\nYou are required to prepare a statement showing the profit for the year between pre-incorporation and post-incorporation. Also, explain how profits are to be treated in the accounts? (Nov 2020, 5 marks)<\/p>\n

\"Cash<\/p>\n

Question 11.
\nABC Ltd. was incorporated on 01.08.2017 to take over the running business of XYZ Bros. with assets from 01.04.2017. The accounts of the company were closed on 31.03.2018. The average monthly Sales during the first four months of the year (2017 \u2014 2018) were twice the Average Monthly Sales during each of the remaining 8 months. Calculate Time Ratio and Sales Ratio.
\nAnswer:
\nComputation of Time Ratio and Sales Ratio<\/p>\n\n\n\n\n\n
Particulars<\/td>\nPer-Incorporation Period<\/td>\nPost- Incorporation Period<\/td>\nTotal<\/td>\n<\/tr>\n
(a) No. of Months = Time Ratio<\/td>\n01.04.2017 to 31.07.2017 = 4 months<\/td>\n01.08.2017 to 31.03.2018 = 8 months<\/td>\n4:8 = 1:2<\/td>\n<\/tr>\n
(b) Sales per Month Ratio (given)
\nOverall Sales Ratio<\/td>\n		\u20b9 2 (twice that of later period)
\n4 month \u00d7\u00a0\u20b9 2<\/td>\n		Base = Say, \u20b9 1 per month
\n8 months \u00d7\u00a0\u20b9 1<\/td>\n		8:8 = 1:1<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Question 12.
\nLotus Ltd. was incorporated on 1st<\/sup> July, 2017 to acquire a running business of Feel goods with effect from 1st<\/sup> April, 2017. During the year 2017-18, the total sales were \u20b9 48,00000 of which \u20b9 9,60,000 were for the first six months. The Gross profit of the company \u20b9 7,81,600. The expenses debited to the Profit and Loss Account included:
\n(i) Director\u2019s fees \u20b9 60,000
\n(ii) Bad debts \u20b9 14,400
\n(iii) Advertising \u20b9 48,000 (under a contract amounting to \u20b9 4,000 per month)
\n(iv) Salaries and General Expenses \u20b9 2,56,000
\n(v) Preliminary Expenses written off \u20b9 20,000
\n(vi) Donation to a political party given by the company \u20b9 20,000.
\nPrepare a statement showing pre-incorporahon and post-incorporation profit for the year ended 31st<\/sup> March, 2018.
\nAnswer:
\nStatement showing the calculation of Profits for the pre-incorporation and post- Incorporation periods
\nFor the year ended 31st<\/sup> March, 2018
\n\"Profit
\n\"Profit<\/p>\n

Working Notes:<\/p>\n

1. Sales Ratio
\n\"Profit
\nThus, Sales Ratio = 1 : 9<\/p>\n

2. Time Ratio
\n1st<\/sup> April, 2017 to 30 June, 2017: 1st<\/sup> July, 2017 to 31st<\/sup> March, 2018
\n= 3 months: 9 months = 1: 3
\nThus, Time Ratio is 1: 3<\/p>\n

Question 13.
\nThe Partners of ABC & Co. decided to convert the partnership into a Private Limited Company called ABCD (P) Ltd. with effect from 1st<\/sup> January. The consideration was agreed at \u20b9 11,70,000 based on the Firm\u2019s Balance Sheet as on that date.
\nHowever, due to some procedural difficulties, the Company could be incorporated only on 1st<\/sup> April. Meanwhile, the business was continued on behalf of the Company, and the consideration was settled on that day with interest at 12% p.a.
\nThe same books of account were continued by the company, which closed its account for the first time on 31st<\/sup> March of the next year and prepared the following summarized Profit and Loss Account.
\n\"Profit
\nThe Company\u2019s only borrowal was a Loan \u20b9 50,00,000 at 12% p.a. to pay the Purchase Consideration due to the Firm and for Working Capital requirements.
\nThe Company was able to double the average monthly Sales of the Firm from 1st<\/sup> April, but the Salaries trebled from that date. It had to obtain additional space from 1st<\/sup> July, for which rent was \u20b9 30,000 per month.
\nPrepare a Profit and Loss Account in columnar form apportioning costs and revenue between pre – incorporation and post-incorporation periods. Also, suggest how the pre-incorporation profits are to be dealt with.
\nAnswer:
\n1. Computation of Ratios for apportionment purposes
\n\"Profit<\/p>\n

Note:
\n1. Expenses apportioned on Sales Ratio Basis:
\n(a) Cost of Goods Sold,
\n(b) Advertisement, and
\n(c) Discounts.
\n2. Expenses apportioned on Time Ratio Basis :
\n(a) Depreciation,
\n(b) Miscellaneous Office Expenses.<\/p>\n

2. Statement showing calculation of Profit\/Losses for Pre and Post incorporation Periods
\n\"Profit<\/p>\n

Note: Treatment of Negative Profit Prior to Incorporation:<\/p>\n

    \n
  1. The Loss may be considered as a reduction from any Capital Reserve arising on acquisition.<\/li>\n
  2. Alternatively, such loss may be treated as Goodwill and shown under Non-Current Assets.<\/li>\n<\/ol>\n

    Question 14.
    \nThe partners of Shri Enterprises decided to convert the partnership firm into a Private Limited Company Shreya (P) Ltd. with effect from 1st<\/sup> January, 2008. However, company could be incorporated only on 1st<\/sup> June, 2008. The business was continued on behalf of the company and the consideration of \u20b9 6,00,000 was settled on that day along with interest @ 12% per annum. The company availed loan of \u20b9 9,00,000 @ 10% per annum on 1st June, 2008 to pay purchase consideration and for working capital. The company closed its accounts for the first time on 31st<\/sup> March, 2009 and presents you the following summarized profit and loss account:
    \n\"Profit
    \nSales from June, 2008 to December, 2008 were 2 1\/2 times of the average sales, which further increased to 3 1\/2 times in January to March quarter, 2009. The company recruited additional work force to expand the business. The salaries from July, 2008 doubled. The company also acquired additional showroom at monthly rent of \u20b9 10,000 from July, 2008.
    \nYou are required to prepare a Profit and Loss Account showing apportionment of cost and revenue between pre-incorporation and post- incorporation periods. Also suggest how the pre-incorporation profits\/losses are to be dealt with. (Nov 2010, 10 marks)
    \nAnswer:
    \nShreya (P) Limited
    \nProfit and Loss Account
    \n(for 15 months ended 31st<\/sup> March, 2009)
    \n\"Profit<\/p>\n

    Treatment of pre-incorporation loss : Pre-incorporation loss may, either be considered as a reduction from any capital reserve accruing in relation to the transaction or be treated as goodwill.<\/p>\n

    Working Notes :<\/p>\n

    1. Computation of sales ratio :
    \nLet the average sales per month in pre-incorporation period be a Average Sales (Pre-incorporation) = a \u00d7 5 = 5a
    \nSales (Post incorporation) from June to December,
    \n\"Profit
    \nSales ratio of pre-incorporation & post incorporation is 5a : 28a<\/p>\n

    2. Computation of ratio for salaries:
    \nLet the average salary be a Pre-
    \nincorporation salary = a \u00d7 5 = 5a
    \nPost incorporation salary
    \n\"Profit
    \nRatio is 5 : 19<\/p>\n

    3. Computation of Rent:
    \n\"Profit<\/p>\n

    4. Computation of interest:
    \n\"Profit<\/p>\n

    Question 15.
    \nA firm M\/s. Alag, which was carrying on business from 1st<\/sup> July, 2010 gets itself incorporated as a company on 1st<\/sup> November, 2010. The first accounts are drawn upto March 31, 2011. The gross profit for the period is \u20b9 56,000. The general expenses are \u20b9 14,220; Director\u2019s fees \u20b9 12,000 p.a.; incorporation expenses \u20b9 1,500. Rent upto 31st<\/sup> December was \u20b9 1,200 p.a., after which it is increased to \u20b9 3,000 p.a. Salary of the manager, who upon incorporation of the company was made a director, is \u20b9 6,000 p.a. His remuneration thereafter is included in the above figure of fees to the directors.
    \nGive Profit and Loss Account showing pre and post incorporation profit. The net sales are \u20b9 8,20,000, the monthly average of which for the first four months is one-half of that of the remaining period. The company earned a uniform profit. Interest and tax may be ignored. (Nov 2011, 6 marks)
    \nAnswer:
    \nProfit & Loss Account
    \n(For 9 months ended on 31st<\/sup> March, 2011)
    \n\"Profit<\/p>\n

    Working Notes :
    \n1. Calculation of sales ratio
    \nLet the average monthly sales of first four months.= 100 and next five months = 200
    \nTotal sales of first four months = 100 \u00d7 4 = 400 and total sales of next
    \nfive months = 200 \u00d7 5 = 1,000
    \nThe ratio of sales = 400 : 1,000 = 2:5<\/p>\n

    2. Time Ratio Pre: Post
    \n= 1st<\/sup> July to 31st<\/sup> Oct: 1st<\/sup> Nov to 31st<\/sup> March
    \n= 4 months : 5 months
    \nThus, Time ratio = 4:5<\/p>\n

    3. Rent
    \nTill 31st<\/sup> December, 2010, rent was \u20b9 1,200 p.a. i.e. \u20b9 100 p.m.
    \nSo, Pre-incorporation rent = \u20b9 100 \u00d7 4 months = \u20b9 400 Post-incorporation rent = (\u20b9 100 \u00d7 2 months) + (\u20b9 250 \u00d7 3 months) = \u20b9 950<\/p>\n

    \"Cash<\/p>\n

    Question 16.
    \nABC Company limited was incorporated on 1st<\/sup> July to take over as from 1st<\/sup> April in the same year the existing business of XYZ Brothers. Under the takeover agreement, all profits made from 1st April belong to the company. The Purchase Consideration was \u20b9 7,00,000. The Vendors received half of it in cash on 1st<\/sup> Oct, in the same year together with interest at 10% per annum. For other half of the Purchase Consideration, they were allotted 3,500 fully paid up Shares of \u20b9 100 each in the Company. The following balances appeared in the Company\u2019s Ledger as at 31st<\/sup> March (year-end):
    \n\"Profit
    \n\"Profit
    \n1. Stock -in-Trade as at 31st<\/sup> March amounted to \u20b9 4,80,000.
    \n2. Depreciation has to be written off on Building at 5%, Furniture and Fixtures at 10% and Transport Vehicles at 20%.
    \n3. Bad Debts amounting to \u20b9 1,000 out of which \u20b9 500 related to Book Debts taken over by the Company, have to be written off and a provision of \u20b9 5,000 to be made for Doubtful Debtors as at 31st<\/sup> March.
    \nPrepare:
    \n1. Profit and Loss Account for the period from 1st April to 31st<\/sup> March, and compute the Profit Prior to Incorporation,
    \n2. Balance Sheet as on 31st<\/sup> March.
    \nAnswer:
    \n1. Computat on of Time Ratio and Sales Ratio
    \n\"Profit<\/p>\n

    2. Trading Account for the year ending 31st<\/sup> March
    \n\"Profit<\/p>\n

    3. Statement showing appropriation of Profit\/Losses for Pre and Post Incorporation Periods
    \n\"Profit<\/p>\n

    Notes:<\/p>\n

      \n
    1. Preliminary Expenses can also be written off against Capital Reserve arising out of Pre-Incorporatlon Profit.<\/li>\n
    2. Interest to Vendors = \u20b9 7,00,000 \u00d7 10% \u00d7 3\/12, for each of Pro and Post Incorporation Periods.<\/li>\n<\/ol>\n

      4. Balance Sheet of as on 31st<\/sup> March…..
      \n\"Profit<\/p>\n

      Note 1: Share Capital
      \n\"Profit<\/p>\n

      Note 2 : Reserves and Surplus
      \n\"Profit<\/p>\n

      Note 3 : Short Term Borrowings
      \n\"Profit<\/p>\n

      Note 4 : Tangible Assets
      \n\"Profit<\/p>\n

      Note 5 : Trade Receivables
      \n\"Profit<\/p>\n

      Question 17.
      \nOn 1st<\/sup> June, AB and Co. sold their business to ABC Private Ltd. as of 1st<\/sup> April for a total consideration of \u20b9 1,00,000 – for Goodwill – \u20b9 30,000, Building – \u20b9 30,000, Machinery – \u20b9 15,000 and Stock – \u20b9 25,000.
      \nABC Private Ltd. was incorporated on 1st<\/sup> June, and the Purchase Consideration was met by issue of Shares. The business was carried on by the Vendors on behalf of the Company from 1st<\/sup> April, and the same set of account books was maintained till 30th<\/sup> June, when the following Trial Balance was prepared –
      \n\"Profit
      \n\"Profit
      \nStocks on Hand on 30th June were \u20b9 18,000.
      \nOn 30th June, ABC & Co. paid \u20b9 10,000 for additional Shares and out of this amount, the Company incurred Preliminary Expenses of \u20b9 6,000 and purchased a Typewriter for \u20b9 3,000. Debtors and Creditors prior to 1st June were to be taken over by ABC & Co.
      \nPrepare the Profit and Loss A\/c of ABC Private Ltd. for the 3 months ended 30th<\/sup> June, and a Balance Sheet (Extract) as at that date.
      \nAnswer:
      \n1. Profit & Loss Account (Extract) of ABC Pvt. Ltd. for the period from 1st<\/sup> April to 30th<\/sup> June
      \n\"Profit<\/p>\n

      2. Statement showing Apportionment of Net Profit
      \n\"Profit<\/p>\n

      3. Journal Entries in the books of AB pvt. Ltd.
      \n\"Profit
      \n\"Profit<\/p>\n

      4. ABC Pvt. Ltd. Bank Account
      \n\"Profit
      \nNote: ABC & Co. Firm\u2019s Bank A\/c is retained by the Firm only, not taken over by the Company. Refer Journal Entry 3.<\/p>\n

      5. AB & Co. (Vendors) A\/c
      \n\"Profit<\/p>\n

      6. Capital Reserve
      \n\"Profit<\/p>\n

      7. Balance Sheet of ABC Private Ltd. (Extract) as at 30th<\/sup> June
      \n\"Profit<\/p>\n

      Note 1: Share Capital
      \n\"Profit<\/p>\n

      Note 2 : Tangible Assets
      \n\"Profit<\/p>\n

      Note 3 : Trade Receivables
      \n\"Profit<\/p>\n

      \"Cash<\/p>\n

      Question 18.
      \nABC Ltd. was incorporated on 1st<\/sup> July, to take over the business of XYZ as and from 1st<\/sup> April XYZ\u2019s Balance Sheet as at that date was as under:
      \n\"Profit
      \nDebtors and Bank Balances are to be retained by the Vendor, and Creditors are to be paid off by him. Realisation of Debtors will be made by the Company on a commission of 5% on cash collected. ABC Ltd. is to issue XYZ with 10,000 Equity Shares of \u20b9 10 each, \u20b9 8 per Share paid up, and cash of \u20b9 56,000.
      \nABC Ltd. issued to the public for Cash, 20,000 Equity Shares of \u20b9 10 each, on which \u20b9 8 per Share was called and paid up, except in the case of 1,000 Shares on which the third call of \u20b9 2 per Share had not been realized as at the end of the financial year. Also, on 2,000 Shares, the Company had received the full amount of \u20b9 10 each. The Shares issued was underwritten for 2% Commission, payable in Shares fully paid up.
      \nIn addition to the balances arising out of the above, the following were shown by the books of accounts.of ABC Ltd. as at the end of the relevant financial year:
      \nParticulars : \u20b9
      \nDiscount (including \u20b9 1,000 allowed on Vendor\u2019s Debtors) : 6,000
      \nPreliminary Expenses : \u20b9 10,000
      \nDirectors Fees : \u20b9 12,000
      \nSalaries : \u20b9 48,000
      \nDebtors (including Vendor\u2019s Debtors) : \u20b9 1,60,000
      \nCreditors : \u20b9 48,000
      \nPurchases : \u20b9 3,20,000
      \nSales : \u20b9 4,60,000<\/p>\n

      Stock at year end (31st<\/sup> March) was \u20b9 52,000. Depreciation at 10% on Furniture and Fittings and at 5% on Building is to be provided. Collections from Debtors belonging to the Vendor were \u20b9 60,000 in the period.
      \nPrepare the Trading and Profit and Loss Account for the period ended 31st<\/sup> March of ABC Limited, and its Balance Sheet as at that date. Make suitable assumptions wherever necessary.
      \nAnswer:
      \n1. Computation of Time Ratio
      \n\"Profit<\/p>\n

      2. Computation of Goodwill on Acquisition
      \n\"Profit<\/p>\n

      3. Underwriters Commission:
      \nCommission payable to Underwriters is 2% on Face Value of \u20b9 2,00,000 i.e. \u20b9 4,000. Such Commission becomes due on completion of the job relating to Shares underwritten. It is assumed that the job relating to Public Issue was finished at the end of the year (31st March), and Shares were allotted to the Underwriter in discharge of his claim for Commission.<\/p>\n

      4. Cash Inflows from Public Issue of Equity Shares
      \n\"Profit<\/p>\n

      5. Total Debtors Account
      \n\"Profit<\/p>\n

      Note: Closing Balance of Company\u2019s Debtors = Total Murali\u2019s Debtors 29,000 = \u20b9 1,31,000.<\/p>\n

      6. Total Creditors Account
      \n\"Profit<\/p>\n

      7. XYZ’s (Vendor) Account
      \n\"Profit<\/p>\n

      Note: The balance in Vendor’s A\/c and Vendors\u2019 Debtors A\/c will be set off while preparing the Co.\u2019s Balance Sheet.<\/p>\n

      8. Trading Account for the year ended 31st<\/sup> March
      \n\"Profit<\/p>\n

      9. Statement showing appropriation of Profit\/Losses for Pre and Post incorporation periods
      \n\"Profit<\/p>\n

      10. Cash\/Bank Account
      \n\"Profit
      \n\"Profit<\/p>\n

      11. Capital Reserve Account
      \n\"Profit<\/p>\n

      12. Balance Sheet of ABC Ltd. as on 31st<\/sup> March
      \n\"Profit
      \n\"Profit<\/p>\n

      Note 1 : Share Capital
      \n\"Profit<\/p>\n

      Note 2 : Tangible Assets
      \n\"Profit
      \nNote: In the absence of information, the other columns are not filled up in the above table.<\/p>\n

      Question 19.
      \nV.I.P. Industries (P) Ltd. was incorporated on 1st<\/sup> May. It took over the proprietary business of ABC with effect from 1st<\/sup> April. The Balance Sheet of ABC as on that date is as follows:
      \n\"Profit
      \nIt was agreed to pay \u20b9 4,50,000 in Equity Shares to ABC. The Company decided to close its first year\u2019s accounts as at 31st<\/sup> March of the next year. The following are the further details furnished to you:
      \nDepreciation may be provided at 10% on assets including additions. The Company requests you to prepare:
      \n1. Journal Entries for the takeover.
      \n2. ABC Account.
      \n3. P and L A\/c, showing separately Pre-Incorporation and Post- Incorporation Profits for the year ending 31st March.
      \nAnswer:
      \n1. Journal Entries for the takeover in the books of VIP Industries (P) Ltd.
      \n\"Profit
      \n\"Profit<\/p>\n

      2. ABC (Vendor) Account
      \n\"Profit<\/p>\n

      3. Trading Account for the year ending 31st<\/sup> March
      \n\"Profit<\/p>\n

      4. Statement showing computation of Profit\/Loss for Pre and post Incorporation periods
      \n\"Profit
      \n\"Profit<\/p>\n

      Note:<\/p>\n

      1. In the absence of information, Gross Profit and Expenses have been apportioned in the Time Ratio i.e. 1:11. Otherwise, the Net Profit for the entire period can be calculated and then apportioned in Time Ratio, i.e. 1:11 since the ratio of apportionment of Gross Profit and each expense item, is the same.<\/p>\n

      2. Pre-Incorporation Profit of \u20b9 4,375 is transferred to Capital Reserve A\/c. Alternatively, this amount may be set off against the Goodwill of \u20b9 42,300 arising on acquisition of business. (Refer Journal Entry 1).<\/p>\n

      \"Cash<\/p>\n

      Question 20.
      \nRoshani & Reshma working in partnership, registered a joint stock company under the name of Happy Ltd. on May 31st<\/sup> 2017 to take over their existing business. The summarized Profit & Loss A\/c as given by Happy Ltd. for the year ending 31st March, 2018 is as under:
      \nHappy Ltd.
      \nProfit & Loss Account for the year ending March 31, 2018
      \n\"Profit
      \n\"Profit
      \nYou are required to prepare a Statement showing allocation of expenses and calculation of pre-incorporation and post- incorporation profits after considering the following information:
      \n(i) GP ratio was constant throughout the year.
      \n(ii) Depreciation includes \u20b9 1,250 for assets acquired in post incorporation period.
      \n(iii) Bad debts recovered amounting to \u20b9 14,000 for a sale made in 2014-15 has been deducted from bad debts mentioned above.
      \n(iv) Total sales were \u20b9 18,00,000 of which \u20b9 6,00,000 were for April to September.
      \n(v) Happy Ltd. had to occupy additional space from 1st<\/sup> Oct. 2017 for which rent was \u20b9 2,400 per month.
      \nAnswer:
      \nPre-incorporation period is for two months, from 1st<\/sup> April, 2017 to 31st<\/sup> May, 2017. 10 months\u2019 period (from 1st<\/sup> June, 2017 to 31st<\/sup> March, 2018) is post-incorporation period.
      \nStatement showing calculation of profit\/losses for pre and post Incorporation periods
      \n\"Profit
      \n\"Profit<\/p>\n

      Working Notes:
      \n(i) Calculation of ratio of Sales
      \nSales from April to September = 6,00,000 (1,00,000 p.m. on average basis)
      \nOct. to March = \u20b9 12,00,000 (2,00,000 p.m. on average basis) Thus, sales for pre-incorporation period = \u20b9 2,00,000 post-incorporation period = \u20b9 16,00,000
      \nSales are in the ratio of 1:8<\/p>\n

      (ii) Gross profit, sales commission and bad debts written off have been allocated in pre and post incorporation periods in the ratio of Sales.<\/p>\n

      (iii) Rent, salary are allocated on time basis.<\/p>\n

      (iv) Interest on debentures is allocated in post incorporation period.<\/p>\n

      (v) Audit fees charged to post incorporation period as relating to company audit.<\/p>\n

      (vi) Depreciation of \u20b9 18,000 divided in the ratio of 1:5 (time basis) and \u20b9 1,250 charged to post incorporation period.<\/p>\n

      (vii) Bad debt recovery of \u20b9 14,000\/- is allocated jn pre-incorporation<\/p>\n

      (viii) Rent
      \n\"Profit<\/p>\n","protected":false},"excerpt":{"rendered":"

      Profit or Loss Pre and Post Incorporation \u2013 CA Inter Accounts Question Bank is designed strictly as per the latest syllabus and exam pattern. Profit or Loss Pre and Post Incorporation – CA Inter Accounts Question Bank Question 1. Rama Udyog Limited was incorporated on August 1, 2008. It had acquired a running business of …<\/p>\n

      Profit or Loss Pre and Post Incorporation – CA Inter Accounts Question Bank<\/span> Read More »<\/a><\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"spay_email":"","footnotes":""},"categories":[167],"tags":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts\/25093"}],"collection":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/comments?post=25093"}],"version-history":[{"count":4,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts\/25093\/revisions"}],"predecessor-version":[{"id":25188,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts\/25093\/revisions\/25188"}],"wp:attachment":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/media?parent=25093"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/categories?post=25093"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/tags?post=25093"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}