You are on page 1of 6

Aurel commerce classes SYBCOM Prof.

Waahid Shah

Profit Prior to Incorporation


Q.1. Baneshwar Ltd. was incorporated on 1st September, 2009 to take over the business of Ekta &
Gomati, a partnership firm with effect from 1st April, 2009.
Following is their Profit & Loss Account for the year ended 31st March, 2010.
Particulars Rs. Particulars Rs.
To Salaries 39,000 By Gross Profit 1,80,000
To Rent 8,000 By Interest on Fixed Deposit 12,000
To Bad Debts 11,000
To Office Expenses 2,400
To Directors Fees 1,000
To Debentures Interest 2,800
To Selling Expenses 24,300
To Salary to Partners 5,000
To Printing & Stationary 6,000
To Preliminary Expenses 1,500
To Net Profit 91,000
1,92,000 1,92,000
Additional Information:
1. Average monthly turnover from October 2009 to March 2010 was twice the average monthly
turnover from April, 2009 to September, 2009.
2. Rent is doubled from 1st December, 2009.
3. Bad Debts include Rs. 2,000 in respect of sales affected two years ago. Remaining Bad Debts are
out of sales affected throughout the year.
4. Salaries include salary of three employees at equal monthly remuneration. However one of them
was appointed as manager from 1st January, 2010. His salary was doubled from that date.
5. In lieu of interest on purchase consideration the vendor would get 40% of the profit earned in Pre-
incorporation period.
6. Interest on Fixed Deposit was received for the entire year.
Prepare Trading and Profit and Loss Account of Baneshwar Ltd. for the year ended 31 st March, 2010
in the columnar form apportioning all the income and expenditure items between Pre-incorporation and
Post-incorporation period on suitable basis.

Q.2.Eeshan Ltd. was incorporated on 1st August, 2008 to acquire a business as on 1st April, 2008. The first
accounts were closed on 31st March, 2009. The following items appeared in the Profit & Loss Account.
Profit & Loss A/c
For the year ended 31st March, 2009
Particulars Rs. Particulars Rs.
Director’s fees 49,000 By Gross Profit 9,60,000
Rent 85,500
Bad debts 12,000
Salaries 1,83,000
Aurel commerce classes SYBCOM Prof. Waahid Shah

Interest on Debentures 24,000


Depreciation 66,000
Preliminary Expenses 42,000
General Expenses 49,200
Commission on Sales 36,000
Printing & Stationery 93,000
Advertising 1,20,500
Audit Fees 58,600
Carriage Outwards 72,800
Electricity charges 44,400
Insurance Premium 24,000
9,60,000 9,60,000
Additional Information:
1. Rent is paid on the basis of floor space occupied. Floor space occupied was doubled in the post
incorporation period.
2. Sales for each month of December, 2008 to March, 2009 were double the of monthly sales April
to November, 2008.
3. Bad debts Rs.500 were in respect of sales affected two years ago.
4. Mr. Amit was working partner in the firm entitled to a remuneration @ Rs.12,000 p.m., from
1st August, 2008 he was managing director of a company entitled to salary @ Rs.15,000 p.m.
The remaining salary is to two Clerks employed during the period 1st July to 30th November,
2008.
You are required to prepare Profit & Loss Account for the year ended 31st March, 2009 and show
‘Pre’ and ‘Post’ incorporation profit or loss.

Q.3. M/s Nimish Pvt. Ltd. was incorporated on 1st August, 2008 to take over the business of Mr. Chinmay
with effect from 1st April, 2008. The following Profit & Loss Account was prepared for the year ended
31st March, 2009.
Particulars Rs. Particulars Rs.
To Office Salaries 24,000 By Gross Profit 1,00,000
To Chinmay’s Salary 2,000 By Share Transfer Fees 2,000
To Advertisement 18,000
To Printing & Stationery 1,500
To Travelling Expenses 4,000
To Office Rent 9,600
To Electricity Charges 5,100
To Director’s Fees 1,200
To Auditor’s Fees 600
To Bad Debts 1,200
To Commission on sales 7,000
To Preliminary Expenses 2,000
To Debenture Interest 2,300
Aurel commerce classes SYBCOM Prof. Waahid Shah

To Interest on Capital 800


To Depreciation 2,100
To Net Profit 20,600
1,02,000 1,02,000
Additional Information:
1. Total sales for the year amounted to Rs. 8,00,000 arose evenly per month upto 30 th September,
2008 whether they recorded an increase of two-third per month during the rest of the period.
2. Office rent was paid @ Rs.8,400 p.a. upto 30th September, 2008 and therefore, it was paid @ Rs.
10,800 p.a.
3. Travelling expenses include Rs.1,600 towards sales promotion. The balance of the travelling
expenses is fixed in the nature.
4. Bad debts written off were :
a) A debt of Rs.400 taken over from the vendor.
b) A debt of Rs.800 in respect of goods sold in September, 2008.
5. Mr. Chinmay agreed to get his accounts audited.
6. Depreciation includes Rs.600 for assets acquired in the post incorporation period.
7. Allocate other expenses and incomes in an appropriate manner.
Prepare Profit & Loss Account showing separately pre-incorporation and post-incorporation profits
for the year ended 31st March, 2009.

Q.4. Mahesh Ltd. was incorporated on 1st March, 2008 to acquire a timber merchant’s business as from 1st
January, 2008. The purchase consideration was agreed at Rs.6,00,000 to be satisfied by the issue of
30,000 equity shares of Rs.10 each and 3,000 – 6% debentures of Rs.100 each. The following Trading
and Profit & Loss Account for the year ended 31st December, 2008 is presented to you.
Particulars Rs. Particulars Rs.
To Material Consumed 7,74,000 By Sales 15,00,000
To Gross Profit 7,26,000
15,00,000 15,00,000
To Salaries to staff 3,40,000 By Gross Profit 7,26,000
To Office expenses 24,000 By Interest on Investment 6,000
To Rent 21,000 By Share transfer fees 1,000
To Selling Expenses 66,000
To Carriage Outwards 11,000
To Debenture Interest 13,500
To Director’s fees 24,000
To Preliminary expenses 28,700
To Interest on Purchase 9,000
consideration
To Loss on sale of 3,000
furniture
To Audit fees 30,000
To Net Profit c/d 1,62,800
7,33,000 7,33,000
Aurel commerce classes SYBCOM Prof. Waahid Shah

You obtain the following information:


1. Sales are of one commodity at a fixed price and the average of the monthly sales for the first two
months was one-half of the average of the monthly sales for the remaining months of the year.
2. The shares and debentures were issued to the vendor on 1st April, 2008.
3. Interest at 6% p.a. was paid on the purchase consideration from 1st January, 2008 to the date of
settlement.
4. Furniture was sold on 1st February, 2008.
5. Interest on investments was in respect of investments made by the company on 1st April, 2008.
6. The number of staff in the pre-incorporation period was 10 and it was increased to 15 in the post
incorporation period (assume that rate of payment is same in all cases)
7. Rent upto 31st October was Rs.18,000 per year after which it was increased to Rs. 36,000 per
year.
Prepare Profit & Loss Account in columnar form showing distinctly the allocation of profits between
pre-incorporation and post-incorporation periods, indicating the basis of allocation of each item.

Q.5. Sunderam Brothers was taken over by Sunderam Ltd. on 1st May, 2008; however, the company was
incorporated on 1st February, 2009. The following was Trading and Profit & Loss Account for the
period from 1st May, 2008 to 31st March, 2009.
Dr Cr
Particulars Rs. Particulars Rs.
To Opening Stock 45,000 By Sales 8,60,000
To Purchases 2,00,000 By Closing Stock 1,65,000
To Wages 80,000
To Gross Profit c/d 7,00,000
10,25,000 10,25,000
To Salaries 72,000 By Gross Profit b/d 7,00,000
To Rent (Net) 39,000 By Discount 7,000
To delivery Van Expenses 14,000
To General Expenses 22,000
To Advertisement Expenses 3,50,000
To Bad Debts Written off 14,000
To Debentures Interest 72,000
To Directors Interest 8,000
To Preliminary Expenses 4,000
To Net Profit c/d 1,12,000
7,07,000 7,07,000
You are informed that:
a) Salaries in pre-incorporation and post-incorporation period were Rs.6,000 p.m. and Rs.9,000 p.m.
respectively.
b) Gross profit percentage is fixed. Average monthly turnover is nine times in May, October and
November, 2008 as compared to average monthly turnover of remaining months.
c) Audit fees Rs.5,500 is to be provided for the above period.
d) Rent on the debit side is after subtracting rent received at Rs. 4,000 p.m. from 1st December,
2008.
Aurel commerce classes SYBCOM Prof. Waahid Shah

You are required to prepare Profit & Loss Account in columnar form, apportioning various
incomes and expenses on suitable basis in the pre and post incorporation period from 1st May, 2008 to 31st
May, 2009.

Q.6. Everfresh Ltd. was formed to take over a running business with effect from 1 st April, 2008. The
company incorporated on 1st October, 2008. The following Profit & Loss Account has been prepared
for the year ended 31st March, 2009.
Particulars Rs. Particulars Rs.
To Salaries 2,40,000 By Gross Profit b/d 16,00,000
To Printing & Stationery 24,000
To Travelling Expenses 84,000
To Advertisement 80,000
To Miscellaneous Trade 1,89,000
Expenses
To Rent 1,32,000
To Electricity Charges 21,000
To Preliminary expenses 56,000
To Bad debts 16,000
To commission on selling 80,000
agents
To Audit fees 30,000
To Debentures Interest 15,000
To Interest paid to Vendors 21,000
To Selling expenses 1,26,000
To Depreciation 48,000
To Net Profit c/d 4,38,000
16,00,000 16,00,000
Relevant Information:
1. Total sales during the year, which amounted to Rs. 96,00,000 arose evenly upto the date of the
certificate of incorporation, thereafter they spurted to record increase of two-thirds during the
rest of the year.
2. Rent of the office building was paid @ Rs.1,20,000 p.a. upto September 2008 and thereafter it
was increased by Rs.24,000 p.a.
3. Travelling expenses include Rs.24,000 towards sales promotion.
4. Depreciation includes Rs.3,000 for assets acquired in the post-incorporation period.
5. Purchase consideration was discharged by the company on 31st October, 2008 by issuing equity
shares of Rs.10 each.
6. Salaries include Rs.40,000 paid to the Director. There were 3 employees upto 30th September,
2008 after which the number was increased by six employees. The rate of salary was the same in
all cases.
Prepare the Profit & Loss Account in columnar form, showing distinctly the allocation of profits
between pre-incorporation and post-incorporation periods, including the basis of allocation.
Aurel commerce classes SYBCOM Prof. Waahid Shah

Q.7. Manasi Ltd. was incorporated on 1st July, 2008 to take over the business of Maithili
W.e.f. 1st April, 2008.
The following information was made available for the year ended 31st March, 2009.
Gross Profit Rs.98,000; Commission paid Rs.2,625; Advertisement Rs.5,250; Discount
allowed Rs.350; Directors fees Rs.9,000; Salaries Rs.18,000; Depreciation Rs.2,800;
Insurance Rs.600; Preliminary expenses Rs.700; Rent and Taxes Rs.3,000; Bad debts
Rs.1,250; Interest to Maithili (upto 1st October, 2008) Rs.2,000; Audit fees Rs.2,000; Bad
debts Recovered (on 1st May, 2008) Rs.500.
The following additional information is also available:
1. Average monthly turnover from September onwards was double than that of average
monthly turnover of the first four months.
However, in August 2008, the turnover was 150% of the turnover in the following month
i.e. September, 2008
2. Rent for the first three months was Rs.20 per month and therefore it was increased by
Rs.50 per month.
3. Bad debts for the period from 1st September, 2008 to 31st March, 2009 amounted to
Rs.550 only.
4. Audit fees were allotted to time basis.
You are required to prepare the Profit & Loss Account fot the pre and post incorporation
period clearly showing the basis of allocation.