Page 271 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes Prepare a Profit and Loss Account in columnar from apportioning costs and revenue between
pre-incorporation and post-incorporation periods. Also, suggest how the pre-incorporation
profits are to be dealt with.
Solution:
Profit and Loss Account for 15 months ended
31 March, 2011
st
Pre- Post- Pre- Post-
Basis of
Particulars incorpo- incorpo- Particulars incorpo- incorpo-
Allocation
ration ration ration ration
To Cost of Sales Turnover 18,20,000 1,45,60,000 By sales 26,00,000 2,08,00,000
To Salaries (1:2) Time 90,000 10,80,000 (Turnover) 19,000 —
To Depreciation Time 36,000 1,44,000 By Net Loss
To Advertisement Turnover 78,000 6,24,000
To Discount Turnover 1,30,000 10,40,000
To M.D. Remuneration. — — 90,000
To Misce. Office Expenses Time 24,000 96,000
To Rent: Old Premises Time 90,000 3,60,000
Add. Premises — — 2,70,000
To Interest Time 3,51,000 6,00,000
To Net Profit — — 19,36,000
26,19,000 2,08,00,000 26,19,000 2,08,00,000
Working Note:
1. Time Ratio –

Pre-incorporation period 1 January 2010 to 1 April 2010 = 3 months.
st
st
Post-incorporation period 1 April 2010 to 31 March, 2011 = 12 months.
st
st
Thus Time Ratio = 3:12 or 1:4.
2. Assume monthly sale was of 1 up to 1 April, 2010, then monthly sales would be 2 after
st
st
1 April 2010.
Pre-incorporation sales = 1 x 3 = 3
Post-incorporation sales = 2 x 12 = 24.
Turnover Ratio = 3 : 24 or 1 : 8

Illustration 5 (Division of Profit and Preparation of Balance Sheet)
st
st
Ashoka Company Limited was incorporated on 1 April, 2010 to take over as from 1 January,
2010, the existing business of Bijoy Brothers. Under the takeover agreement, all profits were
st
made from 1 January, 2010 are belong to the company. The purchase consideration was
7,00,000. The vendors received half of it in cash on 1 July, 2000 together with interest at 10%
st
per annum. For other half of the purchase consideration they were allotted 3,500 fully paid up
shares of 100 each in the company. The following balances appeared in the company’s ledger
as at 31 December, 2010:
st

264 LOVELY PROFESSIONAL UNIVERSITY