Beruflich Dokumente
Kultur Dokumente
2,800
Interest for post incorporation period i.e. for
August, 2009 & September, 2009 =
` 4,200
2
6
1,400
5. Depreciation
Pre Post
` `
Total depreciation 9,600
Less: Depreciation exclusively for post incorporation period 600 600
9,000
Depreciation for pre-incorporation period
4
9,000
12
3,000
Depreciation for post incorporation period
8
9,000
12
6,000
3,000 6,600
The Institute of Chartered Accountants of India
3.6 Accounting
Question 3
Preincorporation expenses.
Answer
Preincorporation expenses denote expenses incurred by the promoters for the purposes of the
company before its incorporation.
Broadly, these include expenses in connection with:
(a) preliminary analysis of the conceived idea,
(b) detailed investigation in terms of technical feasibility and commercial viability to establish the
soundness of the proposition,
(c) preparation of project report or feasibility report and its verification through independent
appraisal authority (before giving final approval to the proposition) and
(d) organisation of funds, property and managerial ability and assembling of other business
elements.
These expenses should be properly capitalised and shown in the balance sheet under the heading
Miscellaneous Expenditure. There is no legal requirement to writeoff these expenses to profit
and loss account within any specified period of time nor is there any rigid accounting convention in
regard to this matter. However, good corporate practice recognises the need to write off these
expenses to profit and loss account within a period of 3 to 5 years.
Question 4
Rama Udyog Limited was incorporated on August 1, 2011. It had acquired a running business
of Rama & Co. with effect fromApril 1, 2011. During the year 2011-12, the total sales were
` 36,00,000. The sales per month in the first half year were half of what they were in the later
half year. The net profit of the company, ` 2,00,000 was worked out after charging the
following expenses:
(i) Depreciation ` 1,08,000, (ii) Audit fees ` 15,000, (iii) Directors fees ` 50,000, (iv)
Preliminary expenses ` 12,000, (v) Office expenses ` 78,000, (vi) Selling expenses ` 72,000
and (vii) Interest to vendors upto August 31, 2011 ` 5,000.
Please ascertain pre-incorporation and post-incorporation profit for the year ended 31
st
March,
2012.
The Institute of Chartered Accountants of India
Profit or Loss Prior to Incorporation 3.7
Answer
Statement showing pre and post incorporation profit for the year ended 31
st
March, 2012
Particulars Total
Amount
Basis of
Allocation
Pre-
incorporation
Post-
Incorporation
` Rs, `
Gross Profit 5,40,000 2:7 1,20,000 4,20,000
Less: Depreciation 1,08,000 1:2 36,000 72,000
Audit Fees 15,000 1:2 5,000 10,000
Directors Fees 50,000 Post - 50,000
Preliminary Expenses 12,000 Post - 12,000
Office Expenses 78,000 1:2 26,000 52,000
Selling Expenses 72,000 2:7 16,000 56,000
Interest to vendors 5,000 Actual 4,000 1,000
Net Profit (` 33,000 being pre-
incorporation profit is
transferred to capital reserve
Account)
2,00,000
33,000
1,67,000
Working Notes:
1. Sales ratio
The 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 Re.1 then it should be 50 paise per
month in the first half year. So sales for the first four months (i.e. from 1
st
April,
2011 to 31
st
July, 2011) will be 4 .50 = ` 2 and for the last eight months (i.e. from
1
st
August, 2011 to 31
st
March, 2012) will be (2 .50 + 6 1) = ` 7. Thus sales
ratio is 2:7.
2. Time ratio
1
st
April, 2011 to 31
st
July, 2011 : 1
st
August, 2011 to 31
st
March, 2012
= 4 months : 8 months = 1:2
Thus, time ratio is 1:2.
3. Gross profit
Gross profit = Net profit + All expenses
= ` 2,00,000 + ` ( 1,08,000+15,000+50,000+12,000+78,000+72,000+5,000)
= ` 2,00,000 +` 3,40,000 = ` 5,40,000.
The Institute of Chartered Accountants of India
3.8 Accounting
Question 5
A firmM/s. Alag, which was carrying on business from1
st
J uly, 2011 gets itself incorporated
as a company on 1
st
November, 2011. The first accounts are drawn upto 31
st
March 2012.
The gross profit for the period is ` 56,000. The general expenses are
` 14,220; Director's fee ` 12,000 p.a.; Incorporation expenses ` 1,500. Rent upto
31
st
December was ` 1,200 p.a after which it is increased to ` 3,000 p.a. Salary of the
manager, who upon incorporation of the company was made a director, is ` 6,000 p.a. His
remuneration thereafter is included in the above figure of fee to the directors.
Give summarised profit and loss account showing pre and post incorporation profit. The net
sales are ` 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 uniformprofit. Interest and tax may be
ignored.
Answer
Summarised Profit & Loss Account for 9 months ended on 31
st
March, 2012
Particulars Basis Pre
incorpora-
tion period
Post-
incorpora-
tion period
Total Particulars Basis Pre-
incorpora-
tion period
Post-
incorpora-
tion period
Total
` ` ` ` ` `
To General
expenses
Time
ratio
6,320 7,900 14,220 By Gross
Profit
Sales
ratio
16,000 40,000 56,000
To
Directors
fee
Actual - 5,000 5,000
To
Formation
expenses
Actual - 1,500 1,500
To Rent
(600 + 750)
W.N. 2 400 950 1,350
To
Managers
salary
Actual 2,000 - 2,000
To Net
Profit
transfd to:
31,930
Capital
Reserve
7,280 - -
P & L
A/c
-
-
24,650
-
16,000 40,000 56,000 16,000 40,000 56,000
The Institute of Chartered Accountants of India
Profit or Loss Prior to Incorporation 3.9
Working Notes:
1. Calculation of sales ratio
Let the average monthly sales of first four months = 100
and next five months = 200
Total sales of first four months = 100 x 4 = 400 and
Total sales of next five months = 200 x 5 = 1,000
The ratio of sales = 400 : 1,000 =2 : 5
2. Rent
Till 31st December, 2011, rent was ` 1,200 p.a. i.e. ` 100 p.m.
So, Pre-incorporation rent = ` 100 x 4 months = ` 400
Post-incorporation rent = (` 100 x 2 months) + (` 250 x 3 months) = ` 950
The Institute of Chartered Accountants of India