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Unit 11: Profit and Loss Prior to Incorporation

(c) Salary and other administrative charges ` 12,000 Notes
(d) Bad Debts ` 4,800
(e) Interest on purchase price paid by the company to Mittal Brothers on 1 August, 2010
st
` 4,200.
(f) Expenses exclusively related to the company ` 17,800.
Ans: Pre-incorporation profit ` 69,200.
Post-incorporation profit ` 252,000.

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5. Sundir Ltd. is incorporated on 1 May, 2010. From January 1, 2010 it purchased the business
of Priyanka Limited for ` 4,00,000 out of which ` 3,20,000 was paid up fully paid equity
shares and the balance was paid in cash. The company also issued equity shares ` 3,00,000
for cash to public. Stock ` 40,000, Machinery ` 3,00,000 and Debtors ` 25,000 were acquired
from vendors.
The purchasing company installed a new machine of ` 2,00,000. During the year 2010 total
cash sales were ` 10,00,000. The sales per month in the first half of the year were one-half
of what they were in the later half year. The net profit of the company after charging the
following expenses was ` 90,000. The directors’ fees ` 20,000, Office exps. ` 7,500,
Preliminary expenses. ` 6,500, Depreciation ` 36,000, Selling expenses. ` 18,000, Interest to
vendor upto 31 May, 2010 is ` 2,000, Closing stock is valued at ` 40,000. Find out profit
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before and after incorporation and prepare a Balance Sheet of Purchasing Company as on
31 December, 2010.
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Ans: Pre-incorporation profit ` 19,900.
Post-incorporation profit ` 70,100.

Answers to Self Assessment

1. Capital 2. Divided
3. Post 4. Post-Incorporation
5. Time Ratio 6. Turnover Ratio

7. Goodwill 8. True
9. False 10. False
11. True 12. True

13. False 14. (b)
15. (b) 16. (b)
17. (b) 18. (b)

11.8 Further Readings

Books Magazines and Journals
Invest in an IPO or DPO. Chicago: Dearborn Trade, 1998

Barker, William W. SEC Registration of Public Offerings under the Securities Act of
1933. Chicago: American Bar Association, 1997.

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