Page 272 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 11: Profit and Loss Prior to Incorporation

Notes
Liabilities Assets
Sales capital 4,500 Shares of 100 each fully 4,50,000 Preliminary Expenses (These are to 8,000
paid (including vendor’s shares) be fully written off)
Bank Overdraft 1,65,000 Salaries and Wages 48,000
Sundry Creditors 65,000 Rent Received 13,000
Fixed Deposit Received 35,000 Rent and Taxes 7,000
Freehold Land at Cost 50,000 Repairs to Buildings 3,000
Building at Cost 1,30,000 Miscellaneous Expenditure 22,000
Furniture & Fixtures at Cost 35,000 Directors’ fees 2,400
Transport Vehicles at Cost 35,000 Interest of Vendors 17,500
Stock-in-Trade on 1 January 4,20,000 Purchases 7,70,000
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Book Debits 95,000 Sales 9,10,000
Cash in hand 12,000 Goodwill 3,100

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The Stock-in-Trade as on 31 December, 2010 amounted to 4,80,000.
Bad debts amounting to 1,000 out of which 500 are related to book debts taken over by the
company, have to be written off and a provision of 5,000 to be made for doubtful debtors as on
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31 December, 2010.
Depreciation has to be written off: Building at 5%, Furniture and Fixtures at 10% and Transport
Vehicles at 20%.
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You are required to prepare (a) a Profit and Loss Account for the year ending 31 December, 2010
and to compute the profit prior to incorporation. For the purpose of determining the profit prior
to incorporation you should assume the turnover to be spread evenly over the year and (b)
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Balance Sheet as on 31 December, 2010.
Solution:
Trading and Profit & Loss Account
of Ashoka Limited for the year ending 31 Dec. 2010
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Particulars Particulars
To Opening Stock 4,20,000 By Sales 9,10,000
To Purchases 7,70,000 By Closing Stock 4,80,000
To Gross Profit 2,00,000
13,90,000 13,90,000

Post-
Pre- Post- Pre-incorpo-
Particulars incorporation incorporation Particulars ration incorpo-
period period period ration
period
To Salaries (1:3) 12,000 36,000 By Gross 50,000 1,50,000
Profit b/d
(1:3)
To Miscellaneous
Exps. (1:3) 5,500 16,500 By Rent 3,250 9,750
Received
(1:3)
To Rates & Taxes (1:3) 1,750 5,250
To Repairs to 750 2,250
Buildings
Contd...
To Preliminary Exps. — 8,000
To Bad Debts 500 500
To Provision for
Doubtful LOVELY PROFESSIONAL UNIVERSITY 265
Debts — 5,000
To Directors’ fees — 2,400
To Interest to Vendors 8,750 8,750
To Depreciation:
Building 6,500 1,500
Furniture 7,000 15,000
Vehicles 3,750 11,250
To Capital Reserve 20,250
To Net Profit 63,850
53,250 1,59,750 53,250 1,59,750