Page 265 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes Basis of Apportionment of Expenses at a Glance
Name of Expenditure Basis of Apportionment
1. Gross Profit or Gross Loss Turnover/Sales Basis
Or
If the sales of the respective periods are not
given in the question, on the basis of direct
expenses relation to sales in the respective
period.
Or
If both the above information are not available
on the basis of time.
2. Fixed Nature Expense e.g., Salaries, Rent, On the basis of time.
General Expenses, Rates, Depreciation,
Postage, Telephone, Printing and Stationery,
Electricity, Audit Fees, Trade Expenses,
Insurance Expenses, Bank Expenses, Interest,
Repairs, Administrative Expenses etc.
3. Variable Expenses e.g., Commission on Sales, Turnover Basis.
Carriage Outwards, Discount, Advertisements,
Salesman’s salary, Bad Debts, Packing, Sales
Expenses.
4. Expenses exclusively for pre-incorporation Not apportioned but are charged to pre-
period: e.g., interest payable on purchase price incorporation period.
to vendor for pre-incorporation period,
vendor’s salary, loss or gain on the sale of
investment before incorporation, etc.
5. Expenses exclusively for post-acquisition Not apportioned but are charged to post-
period e.g., Preliminary Expenses, Directors’ incorporation period.
Fees, Formation, Expenses, Discount on Issue
of Shares and Debentures, Underwriting
Commission, Salary to Managing Director,
Interest on debentures, etc.

Illustration 1 (Division of Expenses on Both Time and Turnover Basis)
Sangita Ltd. was incorporated on 1 March, 2010 and received its Certificate of Commencement
st
of Business on 1 April, 2010. The company bought the business of M/s Sohan & Sons with effect
st
from 1 November, 2009. From the following figures relating to the year ending October 31,
st
2010, find out the profit available for dividends:
(a) Sales for the year were 9,00,000 out of which sales upto 1 March were 3,75,000.
st
(b) Gross Profit for the year was 2,70,000.
(c) The Profit and Loss Account for the year ending October 31, 2010.
Solution:

Particulars Particulars
To Rent and Rates 12,000 By Gross Profit 2,70,000
To Insurance 3,000
To Electricity Charges 2,400
To Salaries 36,000
To Directors’ Fees 7,200
To Interest on Deb. 7,500
To Audit Fees 2,250
To Discount on Sale 5,400
To Depreciation 36,000 Contd ...
To Advertisement 7,200
To Stationery & Printing 27,000
To Commission on Sales 5,400
258 LOVELY PROFESSIONAL UNIVERSITY
To Bad Debt ( 750 relating to pre-incorporation) 2,250
To Interest to vendor (upto 1 May, 2010). 4,500
st
To Net Profit 1,11,900
2,70,000 2,70,000