CHAPTER 1 PROFIT / (LOSS) PRIOR TO INCORPORATION

1. INTRODUCTION :

1. It may happen that in case of a newly formed company that a running business is taken from a particular date,
whereas the company may be incorporated at a later date due to late completion of technical formalities. The
company however, would, be entitled to all the profits from the date of purchase.
2. No company can earn profits prior to its incorporation. The profits earned from the date of take over of business
to the date of incorporation can not be considered as revenue profits. Therefore. Profits earned prior to the
incorporation are treated as ‘Capital Profit’ and transferred to ‘Capital Reserve Account’.
3. If there is a loss during the pre-incorporation period it is debited to ‘Goodwill Account’. Because it is a capital
loss. Profits for the post incorporation period is treated as revenue profit and is available for dividend
distribution.
4. A private limited company can commence business soon after its incorporation, while a public limited company
can commence business only after obtaining certificate of commencement. In the case of Public limited company,
once the certificate of commencement is given, the company’s power to carry on the business relates back to the
date of incorporation. Hence, the date of incorporation should be taken as the relevant date for apportionment of
profits between pre and post incorporation periods.

Profits earned by the company from the date of takeover of busness till the first year ending date

Pre-incorporation period profits Post incorporation period profits

(from the date of purchase of business to the (From the date of incorporation to year
date of incorporation) ending date)

Transfer to capital Reserve, can't be used for Treat as revenue Reserve, can be used for
dividend payment dividend payment

2. ALLOCATION OF PROFITS :

Profit earned by the company from the date of take over of business till the first year ending year ending date (which
may extend even upto 18 months) therefore should be split into two periods-
5. Prior-incorporation period (i.e. from the date of take over of business to the date of incorporation)
6. Post-incorporation period (i.e. from the date of incorporation to the year ending date)
The allocation of Income and Expenditure may be done on the following basis –
S. N Item Basis of Allocation
1 Gross profit Sales ratio
(subject to sales price level and cost price level
remains the same)
2 Cost of Sales Sales
X Cost price level
Sales price level
3 Expenses connected with sales viz. Discount allowed,
Commission on sales, Advertisement, Salesmen traveling, Sales ratio
Bad debts, etc.
4 Expenses chargeable to post-incorporation period only viz. Charge to post-incorporation period only.
Preliminary expenses, Director`s fees, Interest on
Debentures, Underwriting commission, etc.
5 Expenses based on time viz. Salaries, Rent, Rates and Taxes, Time ratio
Insurance, Depreciation, etc.
6. Expenses chargeable to pre-incorporation period only viz. Charge to pre-incorporation period only.
salary to partners, interest on partners capital.

CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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9667671155, 9766921860 PROFIT OR LOSS PRE AND POST INCORPORATION
NOTES :
1. For the proper allocation of expenses, weightage is necessary for change in price level / borrowed capital / rate of
interest, change in number of employees / salary etc.
2. Sales may fluctuate from month to month. In this case sales ratio has to be determined with the help of expected
relationship of monthly sales with the total sales of remaining months.
3. In the absence of any instructions in questions, sales may be presumed to be evenly made over the whole period.
4. Audit fees may be allocated between the pre and post incorporation periods, as the audit is necessary for pre-
incorporation as well as post-incorporation transactions. The audit fees may be allocated on the basis, unless
otherwise any appropriate basis is available.
One of the view is that the audit fees arises only when the company is formed, it may be charged wholly to the
period after incorporation.
5. It is a common practice that the date of incorporation should be taken as the basis for calculation of pre-
acquisition profit since obtaining a certificate of commencement of business is purely a legal formality.
3. LOSS PRIOR TO INCORPORATION :

Any loss prior to incorporation may be dealt with as follows:

a) Debited to Goodwill Account
b) Debited to Capital Reserve Account arising from acquisition of business.
QUESTION : 1
Flat Private Limited was incorporated on 1st July, 2010 to take over the running business of Mr. Round with effect
from 1st April, 2010. The following Profit and Loss Account for the year ended 31st March, 2011 was drawn up.
` `
To commission 2,625 By Gross Profit 98,000
To advertisement 5,250 By bad debts realised 500
To managing director’s remuneration 9,000
To depreciation 2,800
To salaries 18,000
To insurance 600
To preliminary expenses 700
To rent and rates 3,000
To discount 350
To bad debts 1,250
To net profit 54,925
Total 98,500 Total 98,500

The following details are available –

1 The average monthly turnover from July, 2010 onwards was double than that of previous months.
2 Rent for the first three months was paid @ Rs. 200 per month and thereafter at a rate increased by Rs. 50 per
month.
3 Bad debts Rs. 350 related to sales effected after 1st September, 2010 and the realisation of bad debts was in respect
of debts written off during the year 2007.
4 Advertisement expenses were directly proportionate to the sales
You are required to find out the profit prior to and after incorporation and to state the treatment thereof in the books
of the Company.
*****
QUESTION - 2
Subhash Limited was incorporated on 1st March, 2010 and received its certificate for commencement of business on 1st
April, 2010. The company brought the business of M/s. Small & Co. with effect from 1st November, 2009. From the
following figures related to the year ending 31st October, 2010, find out the profits available for dividends;
a. Sales for the year were Rs. 6,00,000 out of which sales upto 1st March 2010 were Rs. 2,50,000
b. Gross profit for the year was Rs. 1,80,000
c. The expenses debited to the Profit and Loss Account were –
`
Rent 9,000
Salaries 15,000
CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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9667671155, 9766921860 PROFIT OR LOSS PRE AND POST INCORPORATION
 Directors fees 4,800
Interest on debentures 5,000
Audit fess 1,500
Discount on sales 3,600
Depreciation 24,000
General expenses 4,800
Advertising 18,000
Stationery and printing 3,600
Commission on sales 6,000
Bad debts (Rs. 500 relates to debts created prior to incorporation) 1,500
Interest to vendor on purchase consideration upto 1st May, 2010 3,000

*****
QUESTION : 3
The business carried by Khushilal under the name “Lost Horizon” was taken over as a running business with effect 1st
July, 2010 by North Horizon limited which was incorporated on 1st October, 2010. The same set of books was
continued since there was no change in the type of business and the following particulars of profit for the year ended
30th June, 2011 were available –
` `
Sales – Company period 40,000
Prior period 10,000 50,000
Selling expenses 2,000
Preliminary expenses (written off) 1,200
Salaries 3,600
Director’s fees 1,200
Interest on capital (upto 30.9.2010) 700
Variable expenses 1,500
Depreciation 2,800
Rent 4,800
Purchases 25,000
Carriage inward 1,019 43,819
Net profit 6,181
The purchase price (including carriage inward) for the company period had increased by 10 percent as compared to pre-
incorporation period. No stocks were carried either at the beginning or at the end.
You are required to draw up a statement showing the amount of pre and post incorporation profits stating the basis of
allocation of expenses. (May 2021 RTP) (May 2018 RTP)
*****
QUESTION : 4
The partners of Maitri agencies decided to convert the partnership into a private limited company called M A (P) Ltd.,
with effect from 1st January, 2010. The consideration was agreed at Rs. 11,70,000 based on the firm’s Balance Sheet as
at 31st December, 2009. However, due to some procedural difficulties, the company could be incorporated only on 1st
April, 2010. Meanwhile the business was continued on behalf of the company and the consideration was settled on
that day with interest at 12% per annum. The same books of accounts were continued by the company which closed its
accounts for the first time on 31st March, 2011 and prepared the following summarized profit and loss account –
` `
Sales 2,34,00,000
Cost of goods sold 1,63,80,000
Salaries 11,70,000
Advertisements 7,02,000
Discounts 11,70,000
Managing director’s remuneration 90,000
Miscellaneous office expenses 1,20,000
Office-cum-show room rent 7,20,000
Interest 9,51,000
Depreciation 1,80,000 2,14,83,000
Net profit 19,17,000
CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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9667671155, 9766921860 PROFIT OR LOSS PRE AND POST INCORPORATION
The company’s only borrwoal was a loan of Rs. 50,00,000 at 12% p.a. to pay the purchase consideration due to the
firm and for working capital requirements.
The company was able to double the average monthly sales of the firm from 1st April 2010 but the salaries trebled from
that date. It had to occupy an additional space from 1st July, 2010 for which rent was Rs. 30,000 per month.
Prepare a profit and loss account in columnar form apportioning costs and revenue between pre-incorporation and
post-incorporation periods. Also suggest how the pre-incorporation profits are to be dealt with.
(Source – Study Material)
*****
QUESTION : 5
ABC Ltd. was incorporated on 1.5.2013 to take over the business of DEC and Co. from 1.1.2013. The Profit and Loss
Account as given by ABC Ltd. for the year ending 31.12.2013 is as under :
Profit and Loss Account
` `
To Rent and Taxes 90,000 By Gross Profit 10,64,000
To Salaries including Manager’s salary 3,31,000 By Interest on Investments 36,000
of Rs. 85,000 (Note)
To Carriage Outwards 14,000
To Printing and Stationery 18,000
To Interest on Debentures 25,000
To Sales Commission 30,800
To Bad Debts (related to sales) 91,000
To Underwriting Commission 26,000
To Preliminary Expenses 28,000
To Audit Fees 45,000
To Loss on Sale of Investments 11,200
To Net Profit 3,90,000
11,00,000 11,00,000
Prepare a statement showing allocation of pre-incorporation and post-incorporation profits after considering the
following informations :
a. G.P. ratio was constant throughout the year.
b. Sales for January and October were 1 ½ times the average monthly sales while sales for December were twice the
average monthly sales.
c. Bad Debts are shown after adjusting a recovery of Rs. 7,000 of Bad Debt for a sale made in July, 2010.
d. Manager’s salary was increased by Rs. 2,000 p.m. from 1.5.2013.
e. All investments were sold in April, 2013. (Source – Study Material)
*****
QUESTION : 6
Rathi Ltd. was incorporated on1st Jan. 2003 with an authorised capital consisting of 5,000 equity shares of Rs.10 each
to take over the running business of Kesarwani Brothers as from 1st Oct. 2002. The following is the summarised Profit
& Loss A/c for the year ended 30th Sept. 2003.
` `
Cost of Sales for the year 16,000 Sales
Administrative expenses 1,768 1st October, 2002 to 31st Dec. 2002
Selling Commission 875 6,000
Goodwill written off. 200 1 January, 2003 to 30
st th

Interest paid to vendors (Loan repaid on 1st September, 2003 19,000 25,000
February, 2003) 373
Distribution expenses (60% variable) 1,250
Preliminary expenses written off 330
Debenture interest 320
Depreciation 444
Director’s fees 100
Net Profit 3,340
25,000 25,000
CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
1.4
9667671155, 9766921860 PROFIT OR LOSS PRE AND POST INCORPORATION
The company deals in one type of product. The unit cost of sales was reduced by 10% in the post- incorporation period
as compared to the pre-incorporation period in the year. You are required to apportion the net profit amount between
pre-incorporation and post-incorporation periods showing the basis of apportionment.
SOLUTION : 6
Statement of Pre-Post Incorporation Profit of Rathi Ltd.
Pre-Inc Post-Inc. Pre-Inc Post-Inc.
Expenses Basis Income Basis
` ` ` `
To Cost of Sales 4,156 11,844 By Sales Actual 6,000 19,000
To Administrative exp. Time 442 1,326
To Selling Commission Sales 210 665
To Goodwill 200
To Interest to vendors Time 280 93
To Distribution 40%
Expenses Fixed
(Time) 125 375
60%
Variable
(Sales) 180 570
To Preliminary exp. 330
To Debenture interest - 320
To Depreciation Time 111 333
To Director’s fees - 100
To Profit 496 2,844
6,000 19,000 6,000 19,000
Note:- Pre-incorporation profit will be treated as capital profit.
WORKING NOTE:-
The cost of sales reduced by 10% in post-incorporation period. If cost in pre-incorporation period is Rs.100, then cost in
post-incorporation will be Rs.90. Values of sales for two periods will be used as weights. Hence, weights will be 6,000:
19,000 or 6: 19.
Therefore, weights ratio of cost is:
(100x 6) : (90 x 19) or 600 : 1,710 or 60 : 171. Cost of sales Rs.16,000 will be divided in this ratio.
Pre-Inc. - ` Post-Inc. - `
Sales 6,000 19,000
Less Cost of Sales Rs.16,000 in the ratio of 60 : 171 4,156 11,844
Gross Profit 1,844 7,156

*****
QUESTION : 7
Mr. X formed a Private Limited Company under the name and style of Exe Private Limited to take over his existing
business as from 1st April, 2000, but the company was not incorporated until 1st July, 2000. No entries relating to
transfer of the business were entered in the books, which were carried on without a break until 31st March, 2001.
The following balances were extracted from the books as on 31st March, 2001.
Dr. (`) Cr. (`)
Opening Stock 43,000
Purchases 1,89,000
Carriage outwards 3,300
Travelling Commission 7,500
Office Salaries 21,000
Administration expenses 19,900
Rent and Rates 12,000
Director’s fees 18,000
Fixed Assets 1,00,000
Current Assets excluding stock 34,000
Preliminary Expenses 5,200
Sales 2,78,000
Mr. X’s Capital A/c on 1.4.2000 2,30,000
Current Liabilities 37,000
CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
1.5
9667671155, 9766921860 PROFIT OR LOSS PRE AND POST INCORPORATION
You are also given that
a. Stock on 31st March, 2001 Rs. 44,000
b. The gross profit ratio is constant and monthly sales in April 2000, February 2001 and March 2001 are double the
average monthly sales for the remaining months of the year.
c. The purchase consideration was agreed to be satisfied by the issue of 3,000 equity shares of Rs.100 each.
d. The preliminary expenses are to be written off.
e. You are to assume that carriage outwards and travellers commission vary in direct proportion to sales.
You are required to prepare Profit and Loss Account for the year ended on 31st March, 2001 apportioning the profit or
loss of the periods before and after incorporation. Depreciation shall be provided at 25% p.a. on Fixed Assets.
SOLUTION : 7
Profit and Loss Account of Exe Private Limited for the
Year Ending on 31st March, 2001
Pre-Inc. Post- Inc. Pre-Inc. Post- Inc.
Particulars Period Period Particulars Period Period
` ` ` `
To Carriage outwards 4 : 11 880 2,420 By Gross profit 24,000 66,000
To Travelling Commission 4 : 11 2,000 5,500 b/d - 23,545
To Office Salaries 1 : 3 5,250 15,750 By Net Loss
To Admn. Expenses 1 : 3 4,975 14,925
To Rent & Rates 3,000 9,000
To Director fees - 18,000
To Preliminary Expenses - 5,200
To Depreciation 1 : 3 6,250 18,750
To Capital Reserve 1,645 -
24,000 89,545 24,000 89,545
Working Notes: ` `
(1) Calculation of Gross Profit:
Sales 2,78,000
Add: Closing Stock 44,000
3,22,000
Less: Opening Stock 43,000
Purchase 1,89,000 2,32,000
Gross Profit 90,000 to be apportioned in Sales Ratio
(2) Calculation of Sales Ratio:
Sales for April 2 Sales from July 2000 to January 2001
May 1 1 For 7 months = 7 x 1 =7
June 1 1 Sales for February 2001 =2
Sales for March =2
4 11
*****
QUESTION - 8
You are required to calculate the weighted time ratio for pre-and post-incorporation periods from the following
particulars:
(i) Date of incorporation 1st April, 2000;
(ii) Period of financial accounts Jan. – Dec, 2000;
(iii) Total wages Rs.4,800;
(iv) Number of workers; Pre-incorporation period 5;
(v) Post-incorporation period 25.
Divide the total wages into pre and post-incorporation periods.
SOLUTION : 8
Simple time ratio = 3 months : 9 months = 1:3
Weighted time ratio = (1 x 5) : (3 x 25) (Calculated by multiplying the time ratio with the ratio of workers)
CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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9667671155, 9766921860 PROFIT OR LOSS PRE AND POST INCORPORATION
 = 5: 75 = 1: 15
Wages for pre-incorporation period = Rs.300; Wages for Post-incorporation period = Rs.4,500.
*****
QUESTION : 9
The Saideep Ltd., was incorporated on 1st August 1996, to take over the running business of Krishna Bros. with effect
from 1st April 1996. The company received the certificate for commencement of business on 1st October 1996. The
following Profit & Loss A/c was prepared for the year ended 31st March 1997.
Profit and Loss Account for the year ended 31st March 1997.
Dr. Cr
Particulars ` Particulars `
To Office Salaries 21,000 By Gross Profit b/d 80,000
To Partners’ Salaries 6,000 By Shares Transfer Fees 1,000
To Advertisement 4,400
To Printing & Stationery 1,500
To Travelling Exp. 4,000
To Office Rent 9,600
To Electricity Charges 900
To Auditors Charges 600
To Directors Charges 1,000
To Bad Debts 1,200
To Commission on Sales 4,000
To Preliminary Exps. 700
To Debenture Interest 1,600
To Interest on Capital 1,800
To Depreciation 2,100
To Net Profit 20,600
81,000 81,000
Additional Information:
(1) Total Sales for the year, which amounted to Rs.8,00,000 arose evenly up to the date of certificate of
commencement, whereafter they recorded an increase of 2/3 during the remaining period. Gross profit was at an
uniform rate of 10% of selling price throughout the year and a commission of 0.5% was paid on sales.
(2) Office Rent was paid @ Rs.8,400 p.a. up to 30th September 1996, and thereafter it was paid @ Rs.10,800 p.a.
(3) Travelling Expenses include Rs.1,600 towards sales promotion.
(4) Bad Debts written off
(a) A debt of Rs.400 taken over from the vendor.
(b) A debt of Rs.800 in respect of goods sold in September 1996.
Depreciation includes Rs.600 for assets acquired in the post-incorporation period.
Show the “pre-” and “post-“ incorporation results and also state how the results of pre- and post-incorporation is
dealt with.
SOLUTION : 9. M/s Saideep Limited
Profit & Loss A/c for the year ended 31.3.96
Pre-Inc Post-Inc. Pre-Inc Post-Inc.
Expenses Basis Income Basis
` ` ` `
To Office salary Time 7,000 14,000 By Gross profit Sales 20,000 60,000
1:2 1:3
To Partners’ salary Actual 6,000 - By Share transfer fee Actual - 1,000
To Advertisement Sales 1,100 3,300
1:3 By Loss transferred to
To Printing & stationary Time 500 1,000 Goodwill A/c 2,800 -
1:2
To Travelling Exp. Sales
To Sales promotion 3:1 400 1,200
CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
1.7
9667671155, 9766921860 PROFIT OR LOSS PRE AND POST INCORPORATION
 To Travelling Exp. Time 800 1,600
To Office rent Actual 2,800 6,800
To Electricity chgs. Time 300 600
To Director’s fees Actual - 1,000
To Auditor’s fees Time 200 400
To Bad debts Actual 400 800
To Commission on sales Sales 1,000 3,000
To Preliminary Exp. Actual - 700
To Debenture Interest Actual - 1,600
To Interest on capital Actual 1,800 -
To Depreciation Time 500 1,600
To Net Profit - 23,400
22,800 61,000 22,800 61,000
WORKING NOTES:-
1. Sales Ratio
Pre-incorporation Post -incorporation
April May June July August Sept. Oct. Nov. Dec. Jan. Feb. March
1 1 1 1 1 1 1.2/3 1.2/3 1.2/3 1.2/3 1.2/3 1.2/3
Pre-incorporation sales : 4. Post-incorporation sales : 12.
Therefore, sales ratio = 4: 12, i.e., 1 : 3
2. Allocation of office rent
Pre Post
April to July 8,400 x 4  12 = 2,800 10,800 x 6  12 = 5,400 Oct. to Mar.
Aug. to March 8,400 x 2  12 = 1,400 Aug. to Sept.
6,800
3. Allocation of Depreciation

Pre Post
On post incorporation assets - 600
Balance Rs.1,500 on time ratio 4:12 500 1,000
4. Travelling Expenses:
Promotion expenses allocated on the basis of sales ratio. Other expense allocated on the basis of time ratio.
*****
QUESTION : 10
Rama Udyog Limited was incorporated on August 1, 20X1. It had acquired a running business of Rama & Co. with
effect from April 1, 20X1. During the year 20X1-X2, the total sales were ` 36,00,000. The sales per month in the first
half year were half of what they were in the later half year. The net profit of the company, ` 2,00,000 was worked out
after charging the following expenses:
(i) Depreciation ` 1,23,000, (ii) Directors’ fees ` 50,000, (iii) Preliminary expenses ` 12,000, (iv) Office expenses ` 78,000,
(v) Selling expenses ` 72,000 and (vi) Interest to vendors upto August 31, 20 X1 ` 5,000.
Please ascertain pre-incorporation and post-incorporation profit for the year ended 31st March, 20X2.
(Study Material)
SOLUTION : 10
Statement showing pre and post incorporation profit for the year ended 31st March, 20X2
Total Amount Basis of Allocation Pre- incorporation Post-Incorporation
Particulars
` ` ` `
Gross Profit (W.N.3) 5,40,000 2:7 1,20,000 4,20,000
Less: Depreciation 1,23,000 1:2 41,000 82,000
Director’s Fees 50,000 Post - 50,000
Preliminary 12,000 Post - 12,000
Expenses

CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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9667671155, 9766921860 PROFIT OR LOSS PRE AND POST INCORPORATION
 Office Expenses 78,000 1:2 26,000 52,000
Selling Expenses 72,000 2:7 16,000 56,000
Interest to vendors 5,000 Actual 4,000 1,000
Net Profit (` 33,000 being pre-
incorporation profit is transferred 2,00,000 33,000 1,67,000
to capital reserve Account)
Working Notes :
1. Sales ratio
The sales per month in the first half year were half of what they were in the later half year. If in the later half year,
sales per month is x then it should be .5 x per month in the first half year. So sales for the first four months (i.e.
from 1st April, 20X1 to 31st July, 20X1) will be 4 x .50 = ` 2 and for the last eight months (i.e. from 1st August, 20
X1 to 31st March, 20X2) will be (2 x .50 + 6 x 1) = ` 7. Thus, sales ratio is 2:7.
2. Time ratio
1st April, 20X1 to 31st July, 20X1 : 1st August, 20X1 to 31st March, 20X2
= 4 months : 8 months = 1:2
Thus, time ratio is 1:2.
3. Gross profit
Gross profit = Net profit + All expenses
= ` 2,00,000 + ` (1,23,000 + 50,000+12,000 + 78,000 + 72,000+5,000)
= ` 2,00,000 + ` 3,40,000 = ` 5,40,000.
*****
QUESTION – 11
Lotus Ltd. was incorporated on 1st July, 20X1 to acquire a running business of Feel goods with effect from 1st April,
20X1. During the year 20X1-20X2, the total sales were ` 48,00,000 of which ` 9,60,000 were for the first six months. The
Gross profit of the company ` 7,81,600. The expenses charged to the Profit & Loss Statement included:
(i) Director’s fees ` 60,000
(ii) Bad debts ` 14,400
(iii) Advertising ` 48,000 (under a contract amounting to ` 4,000 per month)
(iv) Salaries and General Expenses ` 2,56,000
(v) Preliminary Expenses written off ` 20,000
(vi) Donation to a political party given by the company ` 20,000.
Prepare a statement showing pre-incorporation and post-incorporation profit for the year ended 31st March, 20X2.
(Study Material)
SOLUTION : 11
Statement showing the calculation of Profits for the pre-incorporation and post-incorporation periods for the year
ended 31st March, 20X2
Basis of Pre Post
Particulars Total Amount
Allocation incorporation incorporation
Gross Profit 7,81,600 Sales 78,160 7,03,440
Less: Directors’ fee 60,000 Post 60,000
Bad debts 14,400 Sales 1,440 12,960
Advertising 48,000 Time 12,000 36,000
Salaries & general expenses 2,56,000 Time 64,000 1,92,000
Preliminary expenses 20,000 Post 20,000
Donation to Political Party 20,000 Post 20,000
Net Profit 3,63,200 720 3,62,480
Working Notes:
1. Sales ratio
Particulars `
Sales for period up to 30.06.20X1 (9,60,000 x 3/6) 4,80,000
Sales for period from 01.07.20X1 to 31.03.20X2 (48,00,000 - 4,80,000) 43,20,000
Thus, Sales Ratio = 1 : 9
CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
1.9
9667671155, 9766921860 PROFIT OR LOSS PRE AND POST INCORPORATION
2. Time ratio
1st April, 20X1 to 30 June, 20X1: 1st July, 20X1 to 31st March, 20X2
= 3 months: 9 months = 1: 3 Thus,
Time Ratio is 1: 3
*****
QUESTION : 12
The promoters of Glorious Ltd. took over on behalf of the company a running business with effect from 1st April,
20X1. The company got incorporated on 1st August, 20X1. The annual accounts were made up to 31st March, 20X2
which revealed that the sales for the whole year totalled ` 1,600 lakhs out of which sales till 31st July, 20X1 were for `
400 lakhs. Gross profit ratio was 25%.
The expenses from 1st April 20X1, till 31st March, 20X2 were as follows:
(` in lakhs)
Salaries 69
Rent, Rates and Insurance 24
Sundry Office Expenses 66
Traveller’s Commission 16
Discount Allowed 12
Bad Debts 4
Director’s Fee 25
Tax Audit Fee 9
Depreciation on Machinery 12
Debenture Interest 11
Prepare a statement showing the calculation of Profits for the pre-incorporation and post-incorporation periods.
(May 2018 – Sugg. Ans – 10 Marks) (Study Material)
SOLUTION : 12
Statement showing the calculation of Profits for the pre-incorporation and post-incorporation periods
Total Pre Post
Basis of
Particulars Amount Incorporation Incorporation
Allocation
(` in lakhs) (` in lakhs) (` in lakhs)
Gross Profit (25% of ` 1,600) 400 Sales 100 300
Less: Salaries 69 Time 23 46
Rent, rates and Insurance 24 Time 8 16
Sundry office expenses 66 Time 22 44
commission 16 Sales 4 12
Discount allowed 12 Sales 3 9
Bad debts 4 Sales 1 3
Director’s fee 25 Post - 25
Tax Audit Fees 9 Sales 2.25 6.75
Depreciation on Machinery 12 Time 4 8
Debenture interest 11 Post - 11
Net profit 152 32.75 119.25
Working Notes:
1. Sales ratio
(` in lakh)
Sales for the whole year 1,600
Sales up to 31st July, 20X1 400
Therefore, sales for the period from 1st August, 20X1 to 31st March, 20X2 1,200
Thus, sale ratio = 400:1200 = 1:3
2. Time ratio
1st April, 20X1 to 31st July, 20X1 : 1st August, 20X1 to 31st March, 20X2
= 4 months: 8 months = 1:2 Thus,
time ratio is 1:2.
*****
CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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9667671155, 9766921860 PROFIT OR LOSS PRE AND POST INCORPORATION
QUESTION : 13
Inder and Vishnu, working in partnership registered a joint stock company under the name of Fellow Travellers Ltd.
on May 31, 20X1 to take over their existing business. It was agreed that they would take over the assets of the
partnership from January 1st, 20X1 for a sum of ` 3,00,000 and that until the amount was discharged they would pay
interest on the amount at the rate of 6% per annum. The amount was paid on June 30, 20X1. To discharge the purchase
consideration, the company issued 20,000 equity shares of ` 10 each at a premium of ` 1 each and allotted 7%
Debentures of the face value of ` 1,50,000 to the vendors at par.
Fellow Travellers Ltd gives you the following information for the year ended 31st December, 20X1 was as follows:
`
Purchases, including Inventory 1,40,000
Sales: 1st January to 31st May 20X1 60,000
1st June to 31st Dec., 20X1 1,20,000
Closing Inventory in hand 25,000
Expenses:
Freight and carriage 5,000
Salaries and Wages 10,000
Debenture Interest 5,250
Depreciation 1,000
Interest on purchase Consideration (up to 30-6-20X1) 9,000
Selling commission 9,000
Director’s Fee 600
Preliminary expenses 900
Provision for taxes (entirely related with company) 6,000
Prepare statement apportioning the expenses and calculate profits/losses for the ‘post’ and ‘pre-incorporation’periods
and also show how these figures would appear in the Balance Sheet of the company. (Study Material)
SOLUTION : 13 Fellow Travellers Ltd.
Statement showing calculation of profit /losses for pre and post
incorporation periods
Pre Post
Ratio
incorporation incorporation
Gross profit allocated on the basis of sale 1:2 20,000 40,000
Less: Administrative Expenses allocated
On time basis:
(i) Salaries and wages 10,000
(ii) Depreciation 1,000
11,000 5:7 4,583 6,417
Selling Commission on sales the basis of 1:2 3,000 6,000
Interest on Purchase
Consideration (Actual) 5:1 7,500 1,500
Expenses applicable wholly to the
Post-incorporation period:
Debenture Interest 5,250
(1,50,000 x 7% x 6/12)
Director’s Fee 600 5,850
Preliminary expenses 900
Provision for taxes 6,000
Net Profit 4,917 13,333
Time Ratio
Pre incorporation period = 1 January 20X1 to 31 May 20X1 = 5 months
Post incorporation period = 1 June 20X1 to 31 December 20X1 = 7 months
Time ratio = 5: 7
Sales Ratio
Sales in pre incorporation period (1 January 20X1 to 31 May 20X1) = ` 60,000
Sales in post incorporation period (1 June 20X1 to 31 December 20X1) = ` 1,20,000
Sales ratio = 1:2

CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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 Fellow Travellers Ltd.
Extract from the Balance Sheet as at 31st Dec., 20X1
Particulars Notes `
Equity and Liabilities
1 Shareholder’s funds
a Share capital 1 2,00,000
b Reserves and Surplus 2 38,250
2 Non-current liabilities
a Long-term borrowings 3 1,50,000
3 Current liabilities
a Short Term Provisions 4 6,000
Notes to accounts
`
1. Share Capital
20,000 equity shares of ` 10 each fully paid 2,00,000
2. Reserves and Surplus
Profit Prior to Incorporation 4,917
Securities Premium Account 20,000
Profit and loss Account 13,333
38,250
3. Long term borrowings Secured
7% Debentures 1,50,000
4. Short Term Provisions
Provision for Taxes 6,000
*****
QUESTION : 14
ABC Ltd. took over a running business with effect from 1st April, 20X1. The company was incorporated on 1st August,
20X1. The following information for the year ended 31.3.20X2 is given:
`
Gross profit 3,20,000
Expenses:
Salaries 48,000
Stationery 4,800
Travelling expenses 16,800
Advertisement 16,000
Miscellaneous trade expenses 37,800
Rent (office buildings) 26,400
Electricity charges 4,200
Director’s fee 11,200
Bad debts 3,200
Commission to selling agents 16,000
Tax Audit fee 6,000
Debenture interest 3,000
Interest paid to vendor 4,200
Selling expenses 25,200
Depreciation on fixed assets 9,600
Net profit 87,600
Additional information :
(a) Total sales for the year, which amounted to ` 19,20,000 arose evenly up to the date of 30.9.20X1. Thereafter they
recorded an increase of two-third during the rest of the year.
(b) Rent of office building was paid @ ` 2,000 per month up to September, 20X1 and thereafter it was increased by `
400 per month.
CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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9667671155, 9766921860 PROFIT OR LOSS PRE AND POST INCORPORATION
(c) Travelling expenses include ` 4,800 towards sales promotion.
(d) Depreciation include ` 600 for assets acquired in the post incorporation period.
(e) Purchase consideration was discharged by the company on 30th September, 20X1 by issuing equity shares of `
10 each.
Prepare Statement showing calculation of profits and allocation of expenses between pre and post incorporation
periods. (Study Material)
SOLUTION : 14
Statement showing calculation of profits for pre and post incorporation periods for the year ended 31.3.20X2
Pre-incorporation Post- incorporation
Particulars period period
` `
Gross profit (1:3) 80,000 2,40,000
Less: Salaries (1:2) 16,000 32,000
Stationery (1:2) 1,600 3,200
Advertisement (1:3) 4,000 12,000
Travelling expenses (W.N.4) 4,000 8,000
Sales promotion expenses (W.N.4) 1,200 3,600
Misc. trade expenses (1:2) 12,600 25,200
Rent (office building) (W.N.3) 8,000 18,400
Electricity charges (1:2) 1,400 2,800
Director’s fee (post-incorporation) - 11,200
Bad debts (1:3) 800 2,400
Selling agents commission (1:3) 4,000 12,000
Tax audit fee (1:3) 1,500 4,500
Debenture interest (post-incorporation) - 3,000
Interest paid to vendor (2:1) (W.N.5) 2,800 1,400
Selling expenses (1:3) 6,300 18,900
Depreciation on fixed assets (W.N.6) 3,000 6,600
Net profit (Bal.Fig.) 12,800 74,800
Working Notes:
1. Time Ratio
Pre incorporation period = 1st April, 20X1 to 31st July, 20X1
i.e. 4 months
Post incorporation period is 8 months Time ratio is 1: 2.
Sales ratio
2. Let the monthly sales for first 6 months (i.e. from 1.4.20X1 to 30.09. 20X1) be x
Then, sales for 6 months = 6x
2 5
Monthly sales for next 6 months (i.e. from 1.10.X1 to 31.3.20X2) = x + x = x
3 3
5
Then, sales for next 6 months = x X 6 = 10x
3
Total sales for the year = 6x + 10x = 16x
Monthly sales in the pre incorporation period = ` 19,20,000/16 = ` 1,20,000
Total sales for pre-incorporation period = ` 1,20,000 x 4 = ` 4,80,000
Total sales for post incorporation period = ` 19,20,000 - ` 4,80,000 = ` 14,40,000
Sales Ratio = 4,80,000 : 14,40,000 = 1 : 3
3. Rent
Rent for pre-incorporation period (` 2,000 x 4) 8,000 (pre)
Rent for post incorporation period 4,000
August,20X1 & September, 20X1 (` 2,000 x 2) 14,400
0ctober,20X1 to March,20X2 (` 2,400 x 6) 18,400 (post)

CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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9667671155, 9766921860 PROFIT OR LOSS PRE AND POST INCORPORATION
4 Travelling expenses and sales promotion expenses
Pre ` Post `
Traveling expenses ` 12,000 (i.e. ` 16,800 ` 4,800) distributed in Time ratio (1:2) 4,000 8,000
Sales promotion expenses ` 4,800 distributed in Sales ratio (1:3) 1,200 3,600
5. Interest paid to vendor till 30th September, 20X1
Pre ` Post `
Rs 4,200
Interest for pre-incorporation period 6
x4 2,800
Interest for post incorporation period i.e. for
Rs 4,200
August, 20X1 & September, 20X1 = 6
x2 1,400
6. Depreciation
Pre Post
Total depreciation 9,600
Less: Depreciation exclusively for post incorporation period 600 600
Remaining (for pre and post incorporation period) 9,000
4
Depreciation for pre-incorporation period 9,000 x 12
* 3,000
8
Depreciation for post incorporation period 9,000 x * 6,000
12
* Time ratio = 1 : 2 3,000 6,000
*****
QUESTION : 15
Define Pre-incorporation profit/loss in brief. (Study Material)
SOLUTION : 15
When a running business is taken over by the promoters of a company, as
at a date prior to the date of incorporation of company, the amount of profit or loss of such a business for the period
prior to the date the company came into existence is referred to as pre-incorporation profits or losses. For details, refer
para 1 of the chapter.
*****
QUESTION : 16
Sneha Ltd. was incorporated on 1st July, 20X1 to acquire a running business of Atul Sons with effect from 1st April,
20X1. During the year 20X1-X2, the total sales were ` 24,00,000 of which ` 4,80,000 were for the first six months. The
Gross profit of the company ` 3,90,800. The expenses debited to the Profit & Loss Account included:
(i) Director’s fees ` 30,000
(ii) Bad debts ` 7,200
(iii) Advertising ` 24,000 (under a contract amounting to ` 2,000 per month)
(iv) Salaries and General Expenses ` 1,28,000
(v) Preliminary Expenses written off ` 10,000
(vi) Donation to a political party given by the company ` 10,000.
Prepare a statement showing pre-incorporation and post-incorporation profit for the year ended 31st March, 20X2.
(Study Material)
SOLUTION : 16
Statement showing the calculation of Profits for the pre-incorporation and
post-incorporation periods
For the year ended 31st March, 20X2
Basis of Pre- Post
Particulars Total Amount
Allocation incorporation incorporation
Gross Profit 3,90,800 Sales 39,080 3,51,720
Less: Director fee 30,000 Post - 30,000
Bad debts 7,200 Sales 720 6,480
Advertising 24,000 Time 6,000 18,000
Salaries & general 1,28,000 Time 32,000 96,000
expenses

CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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9667671155, 9766921860 PROFIT OR LOSS PRE AND POST INCORPORATION
 Preliminary expenses 10,000 Post 10,000
Donation to Political 10,000 Post 10,000
Party
Net Profit 1,81,600 360 1,81,240
Working Notes:
1. Sales ratio
Particulars `
Sales for period up to 30.06.20X1 (4,80,000 x 3/6) 2,40,000
Sales for period from 01.07.20X1 to 31.03.20X2 (24,00,000 2,40,000) 21,60,000
Thus, Sales Ratio = 1 : 9
2. Time ratio
1st April, 20X1 to 30 June, 20X1: 1st July, 20X1 to 31st March, 20X2
= 3 months: 9 months = 1: 3
Thus, Time Ratio is 1: 3
*****
QUESTION : 17
The partners Kamal and Vimal decided to convert their existing partnership business into a Private Limited Company
called M/s. KV Trading Private Ltd. with effect from 1-7-20X2.
The same books of accounts were continued by the company which closed its account for first term on 31-3-20X3.
The information for the year ended 31-3-20X3 is given below:
(`) in lakhs (`) in lakhs
Turnover 240.00
Interest on investments 6.00
246.00
Less: Cost of goods sold 102.00
Advertisement 3.00
Sales Commission 6.00
Salary 18.00
Managing director’s Remeasuretion 6.00
Interest on Debentures 2.00
Rent 5.50
Bad Debts 1.00
Underwriting Commission 2.00
Audit fees 2.00
Loss on sale of investment 1.00
Depreciation 4.00 152.50
93.50
The following additional information was provided:
(i) The average monthly sales doubled from 1-7-20X2. GP ratio was constant.
(ii) All investments were sold on 31-5-20X2.
(iii) Average monthly salary doubled from 1-10-20X2.
(iv) The company occupied additional space from 1-7-20X2 for which rent of ` 20,000 per month was incurred.
(v) Bad debts recovered amounting to ` 50,000 for a sale made in 20X0, has been deducted from bad debts mentioned
above.
(vi) Audit fees pertains to the company.
Prepare a statement apportioning the expenses between pre and post incorporation periods and calculate the
Profit/Loss for such periods. (Nov. 2019 – 10 Marks) (Study Material)

CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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SOLUTION : 17 K V Trading Private Limited
Statement showing calculation of profit/loss for pre and post incorporation periods
` in lakhs
Pre Post
Ratio Total
Incorporation Incorporation
Sales 1:6 240.00 34.29 205.71
Interest on Investments Pre 6.00 6.00 -
Bad debts recovered Pre 0.50 0.50 -
(i) 246.50 40.79 205.71
Cost of goods sold 1:6 102.00 14.57 87.43
Advertisement 1:6 3.00 0.43 2.57
Sales commission 1:6 6.00 0.86 5.14
Salary (W.N.3) 1:5 18.00 3.00 15.00
Managing remuneration Post 6.00 6.00
Interest on Debentures Post 2.00 - 2.00
Rent (W.N.4) 5.50 0.93 4.57
Bad debts (1 + 0.5) 1:6 1.50 0.21 1.29
Underwriting commission Post 2.00 - 2.00
Audit fees Post 2.00 - 2.00
Loss on sale of Investment Pre 1.00 1.00 -
Depreciation 1:3 4.00 1.00 3.00
(ii) 153.00 22.00 131.00
Net Profit [(i) - (ii)] 93.50 18.79 74.71
Working Notes :
1. Calculation of Sales Ratio
Let the average sales per month be x
Total sales from 01.04.20X2 to 30.06.20X2 will be 3x
Average sales per month from 01.07.20X2 to 31.03.20X3 will be 2x
Total sales from 01.07.20X2 to 31.03.20X3 will be 2x X 9 =18x
Ratio of Sales will be 3x: 18x i.e. 3:18 or 1:6
2. Calculation of time Ratio
3 Months: 9 Months i.e. 1:3
3. Apportionment of Salary
Let the salary per month from 01.04.20X2to 30.09.20X2 is x
Salary per month from 01.10.20X2 to 31.03.20X3 will be 2x
Hence, pre incorporation salary (01.04.20X2 to 30.06.20X2) = 3x
Post incorporation salary from 01.07.20X2 to 31.03.20X3 = (3x + 12x) i.e.15x
Ratio for division 3x: 15x or 1: 5
4. Apportionment of Rent ` Lakhs
Total Rent 5.5
Less: additional rent from 1.7.20X2 to 31.3.20X3 1.8
Rent of old premises for 12 months 3.7
Pre Post
Apportionment in time ratio 0.925 2.775
Add: Rent for new space - 1.80
Total 0.925 4.575
*****
QUESTION : 18
SALE Limited was incorporated on 01.08.20X1 to take-over the business of a partnership firm w.e.f. 01.04.20X1. The
following is the related information for the year ended 31.03.20X2:

CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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 Particulars Amount (`)
Gross Profit (A) 6,00,000
Expenses: Salaries 1,20,000
Rent, Rates & Taxes 80,000
Commission on Sales 21,000
Depreciation 25,000
Interest on Debentures 32,000
Director Fees 12,000
Advertisement 36,000
(B) 3,26,000
Net Profit for the Year (A less B) 2,74,000
(i) SALE Limited initiated an advertising campaign which resulted increase in monthly average sales by 25% post
incorporation.
(ii) The Gross profit ratio post incorporation increased to 30% from 25%.
You are required to apportion the profit for the year between pre-incorporation and post-incorporation, also explain
how pre-incorporation profit is treated in the accounts. (Study Material)
SOLUTION : 18
Statement showing the calculation of Profits for the pre-incorporation and post-incorporation periods
Basis of Pre Post
Particulars Total Amount
Allocation incorporation incorporation
` ` ` `
Gross Profit (W.N.2) 6,00,000 1:3 1,50,000 4,50,000
Less: Salaries 1,20,000 Time 40,000 80,000
Rent, rates and taxes 80,000 Time 26,667 53,333
Sale’s commission 21,000 Sales (2:5) 6,000 15,000
Depreciation 25,000 Time 8,333 16,667
Interest on debentures 32,000 Post 32,000
Director’s fee 12,000 Post 12,000
Advertisement 36,000 post 36,000
Net profit 2,74,000 69,000 2,05,000
Working Notes:
1. Sales ratio
Let the monthly sales for first 4 months (i.e. from 1.4.20X1 to 31.7.20X1) be = x
Then, sales for 4 months = 4x
Monthly sales for next 8 months (i.e. from 1.8.X1 to 31.3.20X2) = x + 25% of x= 1.25x
Then, sales for next 6 months = 1.25x X 8 = 10x
Total sales for the year = 4x + 10x = 14x
Sales Ratio = 4 x :10x i.e. 2:5
2. Gross profit ratio
From 1.4.20X1 to 31.7.20X1 gross profit is 25% of sales
Then, 25% of 4x= 1x
gross profit for next 8 months (i.e. from 1.8.X1 to 31.3.20X2) is 30%
Then, 30% of 10x = 3x
Therefore gross profit ratio will be 1:3
3. Time ratio
1st April, 20X1 to 31st July, 20X1 : 1st August, 20X1 to 31st March, 20X2
= 4 months: 8 months = 1:2
Thus, time ratio is 1:2.
*****

CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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9667671155, 9766921860 PROFIT OR LOSS PRE AND POST INCORPORATION
QUESTION : 19
A partnership firm M/s. Nice Sons was carrying on business from 1st May, 20X1. The partners of the firm decided to
convert the partnership firm into a private company called Zenith (P) Ltd. with effect from 1st September, 20X1. The
annual accounts were drawn upto 31st March, 20X2. The related information from 1st May, 20X1 to 31st March, 20X2
is as follows:
Particulars Amount (`) Amount (`)
Turnover 55,20,000
Interest on Investment 60,000
Profit on sale of Investment 42,000
56,22,000
Less :
Cost of goods sold 34,50,000
Printing & Stationery 77,000
Manager’s Salary 82,000
Audit Fees 41,000
Rent 1,33,000
Bad Debts 33,000
Underwriting Commission 56,000
Depreciation 71,500
Interest on Debentures 8,900
Advertising campaign expenses 69,800
Sundry office expenses 1,06,700
Interest on borrowings 1,25,000 42,53,900
Net Profit 13,68,100
Additional Information Provided:
(1) The company’s only borrowing was a loan of ` 15,00,000 at 9% p.a., to pay the purchase consideration due to
the firm and for working capital requirements. The loan was taken on 1st September, 20X1.
(2) The company occupied additional space from 1st September, 20X1 for which rent of ` 8,000 per month was
incurred.
(3) Audit fee pertains to the company.
(4) Bad debts recovered amounting to ` 36,000 for a sale made in June 20X1, has been deducted from bad debts
mentioned above.
(5) All investments were sold in August 20X1.
(6) Zenith (P) Ltd. initiated an advertising campaign on 1st September, 20X1, which resulted increase in monthly
average sales by 40%.
(7) The salary of Manager was increased by ` 3,000 p.m. from 1st July, 20X1
Prepare a statement showing pre-incorporation and post-incorporation profit for the year ended 31st March 20X2.
(Study Material)
SOLUTION : 19
Statement showing the calculation of Profits for the pre-incorporation and post-incorporation periods `
Pre Post
Ratio Total
Incorporation Incorporation
Sales 1:2.45 55,20,000 16,00,000 39,20,000
Interest on Investments Pre 60,000 60,000 -
Bad debts recovered Pre 36,000 36,000 -
Profit on sale of investment Pre 42,000 42,000
(i) 56,58,000 17,38,000 39,20,000
Cost of goods sold 1:2.45 34,50,000 10,00,000 24,50,000
Advertisement Post 69,800 - 69,800
Sundry office expenses 4:7 1,06,700 38,800 67,900
Printing & Stationary 4:7 77,000 28,000 49,000
Manager Salary W.N.3 82,000 26,000 56,000
Interest on Debentures Post 8,900 - 8,900
Rent W.N.4 1,33,000 28,000 1,05,000
Bad debts 1:2.45 69,000 20,000 49,000
CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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 Underwriting commission Post 56,000 - 56,000
Audit fees Post 41,000 - 41,000
Depreciation 4:7 71,500 26,000 45,500
Interest on Borrowing W.N. 5 1,25,000 46,250 78,750
(ii) 42,89,900 12,13,050 30,76,850
Net Profit [(i) (ii)] 13,68,100 5,24,950 8,43,150
Working Notes :
1. Calculation of Sales Ratio
Let the average sales per month be x
Total sales from 01.05.20X1 to 31.08.20X1 will be 4x
Average sales per month from 01.09.20X1 to 31.03.20X2 will be 1.4x
Total sales from 01.09.20X1 to 31.03.20X2 will be 1.4x X 7 =9.8x
Ratio of Sales will be 4x: 9.8x =1:2.45
2. Calculation of time Ratio
4 Months: 7 Months i.e. 4:7
3. Manager Salary
Total salary 82,000
Less: Increased salary 27,000
55,000
Monthly Salary =55,000/11 5,000
Salary from May to August 5,000 + 5,000 + 8,000 + 8,000 = 26,000
Salary from Sep to March 8,000 x 7= 56,000
4. Apportionment of Rent
Total Rent
Less: Additional rent from 1.9.20X1 to 31.3.20X2 1,33,000
Rent of old premises for 11 months 56,000
77,000
Pre Post
Apportionment in time ratio (4:7) 28,000 49,000
Add: Rent for new space - 56,000
Total 28,000 1,05,000
5. Interest on borrowing
Company’s Borrowing Interest = ` 15,00,000 x 9% x 7/12= ` 78,750
Interest for Pre-incorporation period = ` 1,25,000 - 78,750 = ` 46,250
*****
QUESTION : 20
Roshani & Reshma working in partnership, registered a joint stock company under the name of Happy Ltd. on May
31st 2017 to take over their existing business. The summarized Profit & Loss A/c as given by Happy Ltd. for the year
ending 31st March, 2018 is as under:
Happy Ltd.
Profit & Loss Account for the year ending March 31, 2018
Particulars Amount (`) Particulars Amount (`)
To Salary 1,44,000 By Gross Profit 4,50,000
To Interest on Debenture 36,000
To Sales Commission 18,000
To Bad Debts 49,000
To Depreciation 19,250
To Rent 38,400
To Audit fees (Company Audit) 12,000
To Net Profit 1,33,350
Total 4,50,000 Total 4,50,000
CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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9667671155, 9766921860 PROFIT OR LOSS PRE AND POST INCORPORATION
You are required to prepare a Statement showing allocation of expenses and calculation of pre-incorporation and
post- incorporation profits after considering the following information:
(i) GP ratio was constant throughout the year.
(ii) Depreciation includes ` 1,250 for assets acquired in post incorporation period.
(iii) Bad debts recovered amounting to ` 14,000 for a sale made in 2014-15 has been deducted from bad debts
mentioned above.
(iv) Total sales were ` 18,00,000 of which ` 6,00,000 were for April to September.
(v) Happy Ltd. had to occupy additional space from1st Oct. 2018 for which rent was ` 2,400 per month.
(Source – RTP Nov. 2018, RTP Npv. 2019)
SOLUTION : 20
Pre-incorporation period is for two months, from 1st April, 2017 to 31st May, 2017. 10 month’s period (from 1st June,
2017 to 31st March, 2018) is post-incorporation period.
Statement showing calculation of profit/losses for pre and post incorporation periods
Pre-Inc Post-Inc
` `
Gross Profit 50,000 4,00,000
Bad debts Recovery 14,000
64,000 4,00,000
Less: Salaries 24,000 1,20,000
Audit fees - 12,000
Depreciation 3,000 16,250
Sales commission 2,000 16,000
Bad Debts (49,000 + 14,000) 7,000 56,000
Interest on Debentures - 36,000
Rent 4,000 34,400
Net Profit 24,000 1,09,350
Working Notes:
(i) Calculation of ratio of Sales
Sales from April to September = 6,00,000 (1,00,000 p.m. on average basis)
Oct. to March = ` 12,00,000 (2,00,000 p.m. on average basis)
Thus, sales for pre-incorporation period = ` 2,00,000
post-incorporation period = ` 16,00,000
Sales are in the ratio of 1:8
(ii) Gross profit, sales commission and bad debts written off have been allocated in pre and post incorporation
periods in the ratio of Sales.
(iii) Rent, salary are allocated on time basis.
(iv) Interest on debentures is allocated in post incorporation period.
(v) Audit fees charged to post incorporation period as relating to company audit.
(vi) Depreciation of ` 18,000 divided in the ratio of 1:5 (time basis) and ` 1,250 charged to post incorporation period.
(vii) Bad debt recovery of ` 14,000/- is allocated in pre-incorporation period, being sale made in 2014-15.
(viii) Rent
(` 38,400 - Additional rent for 6 months) `
[38,400- 14,400 (2,400 x 6)] = 24,000
1/4/17 -31/5//17 (2,000 x 2) = 4,000
1/6/17 -31/3/18 - [(2,000 x 10) +14,400] = 34,400
38,400
*****
QUESTION : 21
Green Ltd. took over a running business with effect from 1st April, 2019. The company was incorporated on 1st
August, 2019. The following summarized Profit and Loss Account has been prepared for the year ended 31.3.2020:
` `
To Salaries 72,000 By Gross profit 4,80,000
CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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 To Stationery 7,200
To Travelling expenses 25,200
To Advertisement 24,000
To Miscellaneous trade expenses 56,700
To Rent (office buildings) 39,600
To Electricity charges 6,300
To Director’s fee 16,800
To Bad debts 4,800
To Commission to selling agents 33,000
To Debenture interest 4,500
To Interest paid to vendor 6,300
To Selling expenses 37,800
To Depreciation on fixed assets 14,400
To Net profit 1,31,400
4,80,000 4,80,000
Additional information:
(a) Sales ratio between pre and post incorporation periods was 1:3.
(b) Rent of office building was paid @ ` 3,000 per month up to September, 2019 and thereafter it was increased by `
600 per month.
(c) Travelling expenses include ` 7,200 towards sales promotion. Travelling expenses are to be allocated between pre
and post incorporation periods on time basis.
(d) Depreciation include ` 900 for assets acquired in the post incorporation period.
(e) Purchase consideration was discharged by the company on 30th September, 2019 by issuing equity shares of ` 10
each.
You are required to prepare Statement showing calculation of profits and allocation of expenses between pre and post
incorporation periods. (Source – RTP Nov. 2020)
SOLUTION : 21
Statement showing calculation of profits for pre and post incorporation periods for the year ended 31.3.2020
Pre-incorporation period Post- incorporation period
Particulars
` `
A. Gross profit (1:3) 1,20,000 3,60,000
Less: Salaries (1:2) 24,000 48,000
Stationery (1:2) 2,400 4,800
Advertisement (1:3) 6,000 18,000
Travelling expenses (W.N.3) 6,000 12,000
Sales promotion expenses (W.N.3) 1,800 5,400
Misc. trade expenses (1:2) 18,900 37,800
Rent (office building) (W.N.2) 12,000 27,600
Electricity charges (1:2) 2,100 4,200
Director’s fee 16,800
Bad debts (1:3) 1,200 3,600
Selling agents commission (1:3) 8,250 24,750
Debenture interest 4,500
Interest paid to vendor (2:1) (W.N.4) 4,200 2,100
Selling expenses (1:3) 9,450 28,350
Depreciation on fixed assets (W.N.5) 4,500 9,900
B. 1,00,800 2,47,800
Pre-incorporation profit (A less B) 19,200
Post-incorporation profit (A less B) 1,12,200
Working Notes:
1. Time Ratio
Pre incorporation period = 1st April, 2019 to 31st July, 2019 i.e. 4 months Post incorporation period is 8 months;
Time ratio is 1: 2.
CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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2. Rent
`
Rent for pre-incorporation period (` 3,000 x 4) 12,000 (pre)
Rent for post incorporation period
August,2019 & September, 2019 (` 3,000 x 2) 6,000
October,2019 to March,2020 (` 3,600 x 6) 21,600 27,600 (post)
3. Travelling expenses and sales promotion expenses
Pre ` Post `
Traveling expenses ` 18,000 (i.e. ` 25200 - ` 7200) distributed in 1:2 ratio 6,000 12,000
Sales promotion expenses ` 7,200 distributed in1:3 ratio 1,800 5,400
4. Interest paid to vendor till 30th September, 2019
Pre ` Post `
Interest for pre-incorporation period ` 6,300x 4/6 4,200

Interest for post incorporation period i.e. for August, 2019 & September, 2019 = `
2,100
6,300x 2/6
5. Depreciation
Pre ` Post `
Total depreciation 14,400
Less: Depreciation exclusively for post incorporation period 900 900
13,500
Depreciation for pre-incorporation period (13,500x4/12) 4,500
Depreciation for post incorporation period (13,500x8/12) - 9,000
4,500 9,900
*****
QUESTION : 22
Megha Ltd. was incorporated on 1.7.2020 to take over the running business of M/s Happy from 1.4.2020. The accounts
of the company were closed on 31.3.2021.
The average monthly sales during the first three months of the year (2020-21) was twice the average monthly sales
during each of the remaining nine months.
You are required to compute time ratio and sales ratio for pre and post incorporation periods.
(RTP May 2021)(March 2018 MTP – 5 March)
SOLUTION : 22
Time ratio:
Pre-incorporation period (1.4.2020 to 1.7.2020) = 3 months
Post incorporation period (1.7.2020 to 31.3.2021) = 9 months
Time ratio = 3 : 9 or 1 : 3
Sales ratio:
Average monthly sale before incorporation was twice the average sale per month of the post incorporation period. If
weightage for each post-incorporation month is x, then
Weighted sales ratio = 3 * 2x : 9 * 1x = 6x : 9x or 2 : 3
*****
QUESTION : 23
The Business carried on by Kamal under the name "K" was taken over as a running business with effect from 1st April,
2020 by Sanjana Ltd., which was incorporated on 1st July, 2020. The same set of books was continued since there was
no change in the type of business and the following particulars for the year ended 31st March, 2021 were available:
` `
Sales: Company period (1.7.20 to 31.3.21) 40,000
Prior period (1.4.20 to 30.6.20) 10,000 50,000
Selling Expenses 3,500
Preliminary Expenses written off 1,200

CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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 Salaries paid 3,600
Director’s Fees 1,200
Interest on Capital (Upto 30.6.2020) 700
Depreciation 2,800
Rent expense 4,800
Purchases: Company period (1.7.20 to 31.3.21) 21,875
Prior period (1.4.20 to 30.6.20) 3,125
Carriage Inwards 1,000 43,800
Net Profit 6,200
You are required to prepare a statement showing the amount of pre and post incorporation period profits stating the
basis of allocation of expenses. (RTP May 2021)(April 2019 – MTP – 5 Marks)
SOLUTION : 23
Statement showing the calculation of profits/losses for pre incorporation and Post incorporation period profits of
Sanjana Ltd.
for the year ended 31st March, 2021
Particulars Basis Pre Post
` `
Sales (given) 10,000 40,000
Less: Purchases (given) 3,125 21,875
Carriage Inwards 1:7 125 875
Gross Profit (i) 6,750 17,250
Less: Selling Expenses 1:4 700 2,800
Preliminary Expenses 1,200
Salaries 1:3 900 2,700
Director Fees 1,200
Interest on capital 700
Depreciation 1:3 700 2,100
Rent 1:3 1,200 3,600
Total of Expenses(ii) 4,200 13,600
Pre-incorporation/Net Profit (i-ii) 2,550 3,650
Working Notes:
1: Sales Ratio = 10,000 : 40,000 = 1 :4
2: Time Ratio = 3:9 = 1:3
*****
QUESTION : 24
New Limited was incorporated on 01.08.2020 to take-over the business of a partnership firm w.e.f. 01.04.2020. It
provides you the following information for the year ended 31.03.2021:
`
Gross profit 9,00,000
Expenses:
Salaries 1,80,000
Rent, Rates & Taxes 1,20,000
Depreciation 37,500
Commission on Sales 31,500
Interest on Debentures 48,000
Director’s Fees 18,000
Advertisement 54,000
Net Profit for the Year 4,11,000
(i) New Limited initiated an advertising campaign which resulted increase in monthly average sales by 25% post
incorporation.
(ii) The Gross profit ratio post incorporation increased to 30% from 25%.
You are required to apportion the profit for the year between pre-incorporation and postincorporation periods.
(RTP Nov. 2021)
CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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9667671155, 9766921860 PROFIT OR LOSS PRE AND POST INCORPORATION
SOLUTION : 24
Statement showing the calculation of Profits for the pre-incorporation and postincorporation periods
Total Basis of Pre Post
Particulars
Amount Allocation incorporation incorporation
` ` ` `
Gross Profit 9,00,000 1:3 2,25,000 6,75,000
Less: Salaries 1,80,000 Time 60,000 1,20,000
Rent, rates and taxes 1,20,000 Time 40,000 80,000
Commission on sales 31,500 Sales(2:5) 9,000 22,500
Depreciation 37,500 Time 12,500 25,000
Interest on debentures 48,000 Post 48,000
Director’s fee 18,000 Post 18,000
Advertisement 54,000 post 54,000
Net profit 4,11,000 1,03,500 3,07,500
Working Notes:
1. Sales ratio
Let the monthly sales for first 4 months (i.e. from 1.4.2020 to 31.7.2020) be = x
Then, sales for 4 months = 4x
Monthly sales for next 8 months (i.e. from 1.8.20 to 31.3.2021) = x + 25% of x= 1.25x
Then, sales for next 8 months = 1.25x X 8 = 10x
Total sales for the year = 4x + 10x = 14x
Sales Ratio = 4 x :10x i.e. 2:5
2. Gross profit ratio
From 1.4.2020 to 31.7.2020 gross profit is 25% of sales
Then, 25% of 4x= 1x
gross profit for next 8 months (i.e. from 1.8.20 to 31.3.2021) is 30%
Then, 30% of 10x = 3x
Therefore gross profit ratio will be 1:3
3. Time ratio
1st April, 2020 to 31st July, 2020 : 1st August, 2020 to 31st March, 2021 = 4 months: 8 months = 1:2
Thus, time ratio is 1:2.
*****
QUESTION : 25
Sun Limited took over the running business of a partnership firm M/s A & N Brothers with effect from 1st April, 2017.
The company was incorporated on 1st September, 2017. The following profit and loss account has been prepared for
the year ended 31st March, 2018.
Particulars ` Particulars `
To salaries 1,33,000 By Gross Profit b/d 7,50,000
To rent 96,000
To carriage outward 75,000
To audit fees 12,000
To travelling expenses 66,000
To commission on sales 48,000
To printing and stationery 24,000
To electricity charges 30,000
To depreciation 80,000
To advertising expenses 24,000
To preliminary expenses 9,000
To Managing Director’s remuneration 8,000
To Net Profit c/d 1,45,000
7,50,000 7,50,000
CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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Additional Information :
1. Trend of sales during April, 2017 to March, 2018 was as under:
April, May ` 85,000 per month
June, July ` 1,05,000 per month
August, September ` 1,20,000 per month
October, November ` 1,40,000 per month
December onwards ` 1,50,000 per month
2. Sun Limited took over a machine worth ` 7,20,000 from A&N Brothers and purchased a new machine on 1st
February, 2018 for ` 4,80,000. The company decides to provide depreciation @ 10% p.a.
3. The company occupied additional space from 1st October, 2017 @ rent of ` 6,000 per month.
4. Out of travelling expenses, ` 30,000 were incurred by office staff while remaining expenses were incurred by
salesmen.
5. Audit fees pertains to the company.
6. Salaries were doubled from the date of incorporation.
You are required to prepare a statement apportioning the expenses between pre and post incorporation periods and
calculate the profit/(loss) for such periods. (Nov. 2018 Sugg. Ans – 10 Marks)
SOLUTION : 25
Statement showing calculation of profits for pre and post incorporation periods for the year ended 31.3.2018
Pre-incorporation Post- incorporation
Particulars
period period
Gross profit (1:2) 2,50,000 5,00,000
Less: Salaries (5:14) 35,000 98,000
Carriage outward (1:2) 25,000 50,000
Audit fee - 12,000
T ravelling expenses (W.N.3) 24,500 41,500
Commission on sales (1:2) 16,000 32,000
Printing & stationary (5:7) 10,000 14,000
Rent (office building) (W.N.4) 25,000 71,000
Electricity charges (5:7) 12,500 17,500
Depreciation 30,000 50,000
Advertisement (1:2) 8,000 16,000
Preliminary expenses - 9,000
MD remuneration - 8,000
Pre-incorporation profit - ts/f to Capital reserve (Bal. Fig.) 64,000 -
Net profit (Bal. Fig.) - 81,000
Working Notes:
1. Time Ratio
Pre incorporation period = 1st April, 2017 to 31st August, 2017
i.e. 5 months
Post incorporation period is 7 months
Time ratio is 5: 7.
2. Sales ratio
April 85,000
May 85,000
June 1,05,000
July 1,05,000
August 1,20,000
5,00,000
September 1,20,000
Oct & Nov. 2,80,000
Dec. to March (1,50,000 x 4) 6,00,000
10,00,000
5,00,000:10,00,000 = 1:2 3.
CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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3. Travelling expenses
` `
Pre-incorporation Post- incorporation
30,000 office staff (5:7) 12,500 17,500
36,000 sales (1:2) 12,000 24,000
24,500 41,500
4. Rent
`
Rent for additional space ` (6,000 x 6) 36,000
Remaining rent ` (96,000-36,000) 60,000
Pre-incorporation period (5/12 of 60,000) 25,000
Post- incorporation period ` 35,000 + ` 36,000 71,000
5. Salaries
Suppose x for a month in pre- incorporation period then salaries for preincorporation period = 5x salaries for post-
incorporation period = 2x X 7= 14x
Ratio = 5:14
6. Depreciation
` `
Pre Post
incorporation incorporation
Total depreciation 80,000
Less: Depreciation exclusively for post incorporation period 8,000
(`4,80,000 x 10 x 2/12) 8,000
72,000
Depreciation for pre-incorporation period (` 72,000 x 5/12) 30,000
Depreciation for post incorporation period (` 72,000 x 7/12) 42,000
30,000 50,000
*****
QUESTION : 26
Tarun Ltd. was incorporated on 1st July, 2018 to acquire a running business of Vinay Sons with effect from 1st April,
2018. During the year 2018-19, the total sales were ` 12,00,000 of which ` 2,40,000 were for the first six months. The
Gross Profit for the year is `4,15,000. The expenses debited to the Profit and Loss account included:
(i) Director’s fees ` 25,000
(ii)Bad Debts ` 6,500
(iii)
Advertising ` 18,000 (under a contract amounting to ` 1,500 per month)
(iv)Company Audit Fees ` 15,000
(v) Tax Audit Fees ` 10,000
(1) Prepare a statement showing pre-incorporation and post incorporation profit for the year ended 31st March,
2019.
(2) Explain how profits are to be treated. (May 2019 Sugg. Ans - 5 Marks)
SOLUTION : 26
Statement showing the calculation of Profits for the pre-incorporation and postincorporation periods
For the year ended 31st March, 2019
Total Basis of Pre Post
Particulars
Amount Allocation incorporation incorporation
Gross Profit 4,15,000 Sales (1:9) 41,500 3,73,500
Less: Directors’ fee 25,000 Post 25,000
Bad debts 6,500 Sales (1:9) 650 5,850
Advertising 18,000 Time (1:3) 4,500 13,500
Company Audit Fees 15,000 Post 15,000
Tax Audit Fee 10,000 Sales (1:9) 1,000 9,000
Net Profit 3,40,500 35,350 3,05,150
CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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Pre-incorporation profits to be transferred to capital reserve and post-incorporation profit to be transferred to profit &
Loss A/c.
Working Notes:
I. Sales ratio
Particulars `
Sales for period up to 30.06.2018 (2,40,000 x 3/6) 1,20,000
Sales for period from 01.07.2018 to 31.03.2019 (12,00,000 - 1,20,000) 10,80,000
Thus, Sales Ratio = 1 : 9 (1,20,000 : 10,80,000)
II. Time ratio
1st April, 2018 to 30 June, 2018: 1st July, 2018 to 31st March, 2019
= 3 months: 9 months = 1: 3
Thus, Time Ratio is 1: 3
*****
QUESTION : 27
The partners of C&G decided to convert their existing partnership business into a private limited called CG trading
Pvt. Ltd. with effect from 1.7.2018.
The same books of accounts were continued by the company which closed its accounts for the first term on 31.3.2019.
The summarized profit & loss account for the year ended 31.3.2019 is below:
Particulars ` in lakhs ` in lakhs
Turnover 245.00
Interest on investments 6.00 251.00
Less: Cost of goods sold 124.32
Advertisement 3.50
Sales Commission 7.00
Salaries 18.00
Managing Director’s Remuneration 6.00
Interest on Debentures 2.00
Rent 5.50
Bad debt 1.15
Underwriting Commission 1.00
Audit fees 3.00
Loss on sale of Investments 1.00
Depreciation 4.00 176.47
74.53
The following additional information was provided :
(i) The average monthly sales doubled from 1.7.2018, GP ratio was constant.
(ii) All investments were sold on 31.5.2018.
(iii) Average monthly salaries doubled from 1.10.2018.
(iv) The company occupied additional space from 1.7.2018 for which rent of ` 20,000 per month was incurred.
(v) Bad debts recovered amounting to ` 60,000 for a sale made in 2016-17 has been deducted from bad debts
mentioned above.
(vi) Audit fees pertains to the company.
Prepare a statement apportioning the expenses between pre and post incorporation periods and calculate the profit /
loss for such periods. (Nov. 2019 – Sugg Ans – 10 Marks)
SOLUTION : 27
C G Trading Private Limited
Statement showing calculation of Profit/Loss for Pre and Post Incorporation Periods ` In lakhs
Pre Post
Ratio Total
Incorporation Incorporation
Sales 1:6 245.00 35.00 210.00
Interest on Investments Pre 6.00 6.00 -

CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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 Bad debts recovered Pre 0.60 0.60
(i) 251.6 41.60 210.00
Cost of goods sold 1:6 124.32 17.76 106.56
Advertisement 1:6 3.50 0.50 3.00
Sales commission 1:6 7.00 1.00 6.00
Salary (W.N.3) 1:5 18.00 3.00 15.00
Managing director’s remuneration Post 6.00 - 6.00
Interest on Debentures Post 2.00 - 2.00
Rent (W.N.4) 5.50 0.93 4.57
Bad debts (1.15 + 0.6) 1:6 1.75 0.25 1.50
Underwriting commission Post 1.00 - 1.00
Audit fees Post 3.00 - 3.00
Loss on sale of Investment Pre 1.00 1.00 -
Depreciation 1:3 4.00 1.00 3.00
(ii) 177.07 25.44 151.63
Net Profit [(i) - (ii)] 74.53 16.16 58.37
Working Notes:
1 Calculation of Sales Ratio
Let the average sales per month be x
Total sales from 01.04.2018 to 30.06.2018 will be 3x
Average sales per month from 01.07.2018 to 31.03.2019 will be 2x
Total sales from 01.07.2018 to 31.03.2019 will be 2x X 9 =18x
Ratio of Sales will be 3x: 18x i.e. 3:18 or 1:6
2. Calculation of time Ratio
3 Months: 9 Months i.e. 1:3
3. Apportionment of Salary
Let the salary per month from 01.04.2018 to 30.09.2018 is x
Salary per month from 01.10.2018 to 31.03.2019 will be 2x
Hence, pre incorporation salary (01.04.2018 to 30.06.2018) = 3x
Post incorporation salary from 01.07.2018 to 31.03.2019 = (3x + 12x) i.e. 15x
Ratio for division 3x: 15x or 1: 5
4. Apportionment of Rent
` In Lakhs
Total Rent 5.50
Less: additional rent from 1.7.2018 to 31.3.2019 1.80
Rent of old premises for 12 months 3.70
Pre Post
Apportionment in time ratio 0.93 2.77
Add: Rent for new space - 1.80
Total 0.93 4.57
*****
QUESTION : 28
Moon Ltd. was incorporated on 1st August, 2019 to take over the running business of a partnership firm w.e.f. 1st
April, 2019. The summarized Profit & Loss Account for the year ended 31st March, 2020 is as under:
Amount
`
Gross Profit 6,30,000
Less: Salaries 1,56,000
Rent, Rates & Taxes 72,000
Commission on sales 40,600
Depreciation 60,000
Interest on Debentures 36,000
CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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 Director's fees 24,000
Advertisement 48,000 4,36,600
Net Profit for the year 1,93,400
Moon Ltd. initiated an advertising campaign which resulted in increase of monthly sales by 25% post incorporation.
You are required to prepare a statement showing the profit for the year between preincorporation and post-
incorporation. Also, explain how these profits are to be treated in the accounts? (Nov. 2020 Sugg Ans - 4 Marks)
SOLUTION : 28
Statement showing the calculation of Profits for the pre-incorporation and postincorporation periods
Total Basis of Pre Post
Particulars
Amount Allocation incorporation incorporation
` ` ` `
Gross Profit (W.N.2) 6,30,000 2:5 (sales) 1,80,000 4,50,000
Less: Salaries 1,56,000 Time (52,000) (1,04,000)
Rent, rates and taxes 72,000 Time (24,000) (48,000)
Commission on sales 40,600 2:5 (sales) (11,600) (29,000)
Depreciation 60,000 Time (20,000) (40,000)
Interest on debentures 36,000 Post (36,000)
Directors' fee 24,000 Post (24,000)
Advertisement 48,000 Post ( 48,000)
Net profit 72,400 1,21,000
Pre-incorporation profit will be transferred to Capital Reserve.
Post-incorporation profit will be transferred to Profit & Loss Account.
Working Notes:
1. Sales ratio
Let the monthly sales for first 4 months (i.e. from 1.4.2019 to 31.7.2019) be = x
Then, sales for 4 months = 4x
Monthly sales for next 8 months (1st August, 2019 to 31st March, 2020)
= x + 25% of x= 1.25x Then, sales for next 8 months = 1.25x X 8 = 10x
Total sales for the year = 4x + 10x = 14x. Hence Sales Ratio = 4 x :10x i.e. 2:5
2. Time ratio
1st April, 2019 to 31st July, 2019 : 1st August, 2019 to 31st March, 2020
= 4 months: 8 months = 1:2. Thus, time ratio is 1:2.
*****
QUESTION : 29
S. Ltd. was incorporated on 30th November 2020 to take over the running Business of proprietorship firm of Mr. S. The
various expenses debited to the profit and loss Account for the year 2020-21 included:
(i) Directors fees
(ii) Preliminary expenses written off
(iii) Salaries and general expenses
(iv) Statutory Audit fees
(v) Tax Audit fees u/s 44 AB of the Income Tax Act, 1961
(vi) Commission to travelling agents
(vii) Sale promotion expenses
(viii) Advertisement expenses
(ix) Rent expenses
(x) Bad debts
You are required to determine the basis of apportionment of above expenses between pre incorporation and post
incorporation periods. (July 2021 Exam Paper - 4 Marks)

CA Vinod Kumar Agarwal, A.S. Foundation, Pune CA INTERMEDIATE – NEW COURSE – ACCOUNTING
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9667671155, 9766921860 PROFIT OR LOSS PRE AND POST INCORPORATION
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DERIVATIVE & FOREX TOPICS Agarwal
SFM - ONLY PORTFOLIO, CA Vinod Kumar
17. Revision English 42 6 Months ₹ 1,000 6 Months - - ₹ 2,000 ₹ 2,500
DERIVATIVE & FOREX TOPICS Agarwal
CA Vinod Kumar
18. FR - IND AS Revision English 75 6 Months ₹ 3,000 6 Months ₹ 3,500 ₹ 4,000 ₹ 4,300 ₹ 5,000
Agarwal
CA Vinod Kumar
19. FR - IND AS 12 Topic English 9 - - 1 Year - - ₹ 500 ₹ 1,000
Agarwal
CA Vinod Kumar
20. FR - IND AS 16 Topic English 9 - - 1 Year - - ₹ 500 ₹ 1,000
Agarwal
CA Vinod Kumar
21. FR - IND AS 28 Topic English 10 - - 1 Year - - ₹ 500 ₹ 1,000
Agarwal
FR - IND AS 32,107,109 - CA Vinod Kumar -
22. Topic English 47 - 1 Year - - ₹ 1,500 ₹ 1,800
FINANCIAL INSTRUMENT Agarwal
CA Vinod Kumar
23. FR - IND AS 36 Topic English 8 - - 1 Year - - ₹ 500 ₹ 1,000
Agarwal
CA Vinod Kumar
24. FR - IND AS 38 Topic English 7 - - 1 Year - - ₹ 500 ₹ 1,000
Agarwal
CA Vinod Kumar
25. FR - IND AS 40 Topic English 4 - - 1 Year - - ₹ 500 ₹ 1,000
Agarwal
CA Vinod Kumar
26. FR - IND AS 41 Topic English 3 - - 1 Year - - ₹ 500 ₹ 1,000
Agarwal
CA Vinod Kumar
27. FR - IND AS 101 Topic English 3 - - 1 Year - - ₹ 500 ₹ 1,000
Agarwal
CA Vinod Kumar
28. FR - IND AS 102 Topic English 12 - - 1 Year - - ₹ 500 ₹ 1,000
Agarwal
FR - IND AS 103 – CA Vinod Kumar
29. Topic English 28 - - 1 Year - - ₹ 2,200 ₹ 2,500
BUSINESS COMBINATION Agarwal
FR - IND AS 110 -
CA Vinod Kumar
30. CONSOLIDATED FINANCIAL Topic English 28 - - 1 Year - - ₹ 2,700 ₹ 3,000
Agarwal
STATEMENT
FR – IND AS 115 – REVENUE FROM CA Vinod Kumar
31. Topic English 11 - - 1 Year - - ₹ 800 ₹ 1,000
CONTRACTS WITH CUSTOMERS Agarwal
FR - IND AS 116 – CA Vinod Kumar
32. Topic English 14 - - 1 Year - - ₹ 800 ₹ 1,000
LEASE ACCOUNTING Agarwal
CA Vinod Kumar
33. SFM - BOND VALUATION Topic English 20 - ₹ 500 1 Year - - ₹ 1,000 ₹ 1,500
Agarwal
CA Vinod Kumar
34. SFM - BUSINESS VALUATION Topic English 8 - ₹ 500 1 Year - - ₹ 1,000 ₹ 1,500
Agarwal
CA Vinod Kumar
35. SFM - DERIVATIVES TOPIC Topic English 35 9 Months ₹ 500 1 Year - - ₹ 1,700 ₹ 2,000
Agarwal
CA Vinod Kumar
36. SFM - FOREX TOPIC Topic English 31 9 Months ₹ 500 1 Year - - ₹ 1,600 ₹ 2,000
Agarwal
Durations 1.2 Views 1.2 Views 1.2 Views 2.0 Views 2.0 Views
Sr. SUBJECT Pattern Faculty Language Validity Validity
(hrs.) Cloud & Cloud & Pendrive & Cloud Pendrive &
 eBooks Books Books & Books Books

CA Vinod Kumar
37. SFM - MERGERS AND ACQUISITIONS Topic English 9 - ₹ 500 1 Year - - ₹ 1,000 ₹ 1,500
Agarwal
SFM - PORTFOLIO MANAGEMENT CA Vinod Kumar
38. Topic English 27 9 Months ₹ 500 1 Year - - ₹ 1,600 ₹ 2,000
TOPIC Agarwal
CA Vinod Kumar
39. SFM - VALUATION OF SHARES Topic English 7 - ₹ 500 1 Year - - ₹ 1,000 ₹ 1,500
Agarwal
CA Vinod Kumar
40. SFM - VALUE AT RISK Topic English 3 - ₹ 500 1 Year - - ₹ 1,000 ₹ 1,500
Agarwal
₹ 8075
₹ 8500
41. CORPORATE & ECONOMICS LAWS Regular CA Amit Bachhawat Hindi+Eng. 90 - - - (Mobile/ - -
(Laptop)
cloud)
CA Neelamkumar 7500 8500
42. Hindi 120 - - - - -
Bhandari (1.8 Views) (1.8 Views)

43. CA Padma Jain English 110 - - - - - - ₹ 9,300

CA Shivangi 4000 5000

44. Hindi+Eng. 122 - - 1 Year - -
Agarwal (3 Views) (3 Views)
CA Shivangi 5000
45. English 115 - - 1 Year - - -
Agarwal (3 Views)
` 7,700 ` 8,700 ` 9,700 ` 10,700
English
46. CA Arpita Tulsyan 100 - - - 1.5 View 1.5 View 2.5 View 2.5 View
(old & New)
(6 Months) (6 Months) (12 Months) (12 Months)
` 7,700 ` 8,700 ` 9,700 ` 10,700
Hinglish
47. CA Arpita Tulsyan 150 - - - 1.5 View 1.5 View 2.5 View 2.5 View
(old & New)
(6 Months) (6 Months) (12 Months) (12 Months)
English ` 5,200 ` 6,200
48. Fast-Track CA Arpita Tulsyan 65 6 Months - -
(old & New) 1.5 View 1.5 View
CA Neelamkumar 4000 4500
49. CORPORATE LAW Regular Hindi 75 - - - - -
Bhandari (1.8 Views) (1.8 Views)
` 9,500 ` 10,000 ` 14500 ` 15,000
Hinglish 55
50. CORPORATE & ECONOMICS LAWS Regular CA Darshan Khare - - - 1.5 View 1.5 View 2 View 2 View
(old & New) (180 Hrs)
(6 Months) (6 Months) (6 Months) (6 Months)
` 12,000 ` 12,500 ` 17500 ` 18000
Hinglish 55
51. CORPORATE & ECONOMICS LAWS Regular CA Darshan Khare - - - 1.5 View 1.5 View 2 View 2 View
(old & New) (180 Hrs)
(12 Months) (12 Months) (12 Months) (12 Months)
` 7,000 ` 7,500
Hinglish 35
52. CORPORATE & ECONOMICS LAWS FASTTRACK CA Darshan Khare - - - 1.5 View 1.5 View `- `-
(old & New) (120 Hrs)
(6 Months) (6 Months)
9,500
53. CORPORATE & ECONOMIC LAWS Regular CA A.K.S.Krishnan English 70 - - - (5 Views) -
6 Months

54. FINANCIAL REPORTING [FR] Regular CA Amit Samriya English 222 - - 1 year - - 11,300 ₹ 12,200

CA Anand
55. English 194 - - 1 Year - - ₹ 12,000 ₹ 13,000
Bhangariya

56. CA M K Jain English 160 - - - - - - ₹ 9,300

57. Revision CA Amit Samriya English 45 - - - - - ₹ 6,300 ₹ 7,000

58. Regular CA Vinesh Savla English 350* - - 1 year - - ₹ 9,800 ₹ 10,500

59. Fast-Track CA Vinesh Savla Hinglish 76 - - 1 year - - ₹ 4,500 ₹ 5,000

STRATEGIC FINANCIAL Regular CA Archana Khetan English 200 - - - - - 14500 15000

60.
MANAGEMENT (SFM) (1.8 Views) (1.8 Views)
CMA Chander English – May
61. 140 - - - - - ₹ 7,000 ₹ 7,400
Dureja 21
CMA Chander English –
62. 140 - - - - - ₹ 9,000 ₹ 9,400
Dureja Nov 21
CA Kanwarpreet
63. Hindi+Eng. 135 - - - - - - ₹ 17,000
Singh Jassal

64. CA M K Jain English 110 - - - - - - ₹ 9,300

65. CA Pravin Mahajan Hindi 183 - - - - - ₹ 11,100 ₹ 11,400

₹ 9750 ₹ 10875 ₹ 10875 ₹ 12000

66. CA Sanjay Khemka Hindi+Eng. 240 - (1.8 Views) (1.8 Views) (2.0 Views) (2.0 Views)
(6 Months) (6 Months) (12 Months) (12 Months)
Hinglish
67. CA Vinesh Savla 150 - - 1 year - - ₹ 9,300 ₹ 9,800
(Old & New)
CA Shashank
68. Revision English 65 - - - - - ₹ 5,100 ₹ 6,100
Wandhe

69.

70.
 1.2 Views 1.2 Views 1.2 Views 1.5 Views 1.5 Views
Durations
Sr. Subject Pattern Faculty Language Validity Cloud & Validity Cloud & Pendrive & Cloud & Pendrive
(hrs.)
eBooks Books Books Books & Books
FINANCIAL SERVICES AND ELECTIVE
1. CA Vinod Kumar Agarwal English 134 9 Months ₹ 3,500 1 Year ₹ 6,000 ₹ 7,000 ₹ 8,000 ₹ 9,000
CAPITAL MARKETS (FSCM) PAPER

GLOBAL FINANCIAL ELECTIVE

2. CA Vinod Kumar Agarwal English 167 9 Months ₹ 3,500 1 Year ₹ 6,000 ₹ 7,000 ₹ 8,000 ₹ 9,000
REPORTING STANDARDS PAPER

ELECTIVE
3. RISK MANAGEMENT CA Vinod Kumar Agarwal English 65 9 Months ₹ 3,500 1 Year ₹ 6,500 ₹ 7,000 ₹ 8,500 ₹ 9,000
PAPER
₹ 5590 ₹ 6110 ₹ 6890 ₹ 7410
ELECTIVE
4. CA Sanjay Khemka Hindi & Eng. 58 - - - (1.5 Views) (1.5 Views) (2.0 Views) (2.0 Views)
PAPER
6 Months 6 Months 9 Months 9 Months
ELECTIVE CA Neelamkumar 4000 4500
5. ECONOMICS LAWS Hindi 45 - - - - -
PAPER Bhandari (1.8 Views) (1.8 Views)

ELECTIVE ` 7,200 ` 7,600

6. ECONOMICS LAWS CA Arpita Tulsyan English 50 6 Months - -
PAPER 2 View 2 View
3,600
ELECTIVE
7. ECONOMICS LAWS CA A.K.S.Krishnan English 20 - - - (3 Views) -
PAPER
3 Months
DIRECT TAX LAWS &
8. Regular CA Subodh Shah English 150 9 Months ₹ 6,000 1 Year ₹ 8,000 ₹ 9,000 ₹ 9,000 ₹ 10,000
INTERNATIONAL TAXATION

9. CA Bhanwar Borana Hindi OR Eng. 225 - - 9 Months ₹ 14,500 ₹ 16,000 - -

10. CA Sidharth Surana English 170 - - - ₹ 13,000 ₹ 13,500 - -

11. CA Durgesh Singh Hindi 200 - - - - - ₹ 17,500 ₹ 18,500

12. CA Mehul Thakkar Hindi 200 - - - - - ₹ 11,500 -

13. CA Satish Mangal Hindi 310 - - - ₹ 14,000 ₹ 15,000 - -

₹ 9,499 ₹ 10499
14. DIRECT TAX LAWS Regular CA Vijay Sarda Hindi & Eng. 230 (1.5 Views) (1.5 Views)
6 Months 6 Months
₹ 9,499 ₹ 10,499
DIRECT TAX LAWS Regular CA Vijay Sarda Hindi & Eng. 230
15. (1.5 Views) (1.5 Views)
(New Recording May-22/Nov-22)
6 Months 6 Months
₹ 7,799 ₹ 8,999
16. CMA DIRECT TAX Regular Regular CA Vijay Sarda Hindi & Eng. 225 (1.5 Views) (1.5 Views)
6 Months 6 Months
₹ 9,499 ₹ 10,499
CMA DIRECT TAX Regular Regular CA Vijay Sarda Hindi & Eng. 230
17. (1.5 Views) (1.5 Views)
(New Recording May-22/Nov-22)
6 Months 6 Months
₹ 6,499 ₹ 7,499
18. CMA DIRECT TAX Regular Fast Track CA Vijay Sarda Hindi & Eng. 125 (1.5 Views) (1.5 Views)
6 Months 6 Months

19. DIRECT TAX LAWS Revision CA Bhanwar Borana Hindi & Eng. 95 - - 6 Months ₹ 6,750 ₹ 7,500 - -

₹ 6,499 ₹ 7,499
20. Fast Track CA Vijay Sarda Hindi & Eng. 110 (1.5 Views) (1.5 Views)
6 Months 6 Months
11000 11500
21. INDIRECT TAXES LAWS [IDT] Regular CA Ankit Kumar Jain English 160 - - 1 Year - -
(1.8 Views) (1.8 Views)

22. CA Yashvant Mangal Hindi 115 ₹ 11,200 6 Months ₹ 12,000 ₹ 12,500 - -

23. CA Rajesh Tayal English 100 - - - - - - ₹ 9,500

₹ 5000 ₹ 6500 ₹ 7500

24. CA Amit Jain Hindi 100 6 Months 6 Months - -
5 Views) (5 Views) (5 Views)

25. CA Rajesh Tayal Hindi & Eng. 80 - - - - - - ₹ 9,500

26. Revision CA Brindavan Giri Hindi 100 - - - - - ₹ 7,000 ₹ 8,000

27. CA Yashvant Mangal Hindi 50 - 4 Months ₹ 4,650 ₹ 4,950 - -

28. Regular CA Vinesh Savla Hinglish 180* - - 1 year - - ₹ 10,000 ₹ 11,000

 1.2 Views 1.2 Views 1.2 Views 2.0 Views 2.0 Views
Durations
Subject Pattern Faculty Language Validity Cloud & Validity Cloud & Pendrive & Cloud Pendrive &
(hrs.)
eBooks Books Books & Books Books

Revision CA Ankit Kumar Jain English 20 6 Months - 6 Months - - 999 1499

29. CUSTOM + FTP
(1.8 Views) (1.8 Views)
2300
30. CA Jagat Khicha Hindi & Eng. 80 - - - - ₹ 2,800 ₹ 3,000
(2 Views)
GST + CUSTOM
31. Topic CA Brindavan Giri Hindi 215 - - - - - ₹ 14,000 ₹ 15,000

32. CA Jagat Khicha Hindi & Eng. 200 - - - - - ₹ 5,000 ₹ 6,000

33. CA Yachana Mutha English 100 - - - ₹ 5,000 ₹ 6,000 - -

34. GST ONLY Topic CA Brindavan Giri Hindi 156 - - - - - ₹ 12,000 ₹ 13,000

7000 8000
35. CA Ashish Deolasi Hindi & Eng. 86 - - - - -
(Unlt. Views) (Unlt. Views)

36. CA Yachana Mutha English 65 - - - ₹ 5,000 ₹ 6,000 - -

INTERNATIONAL TAXATION Regular CA Bhanwar Borana Hindi & Eng. 71 - 6 Months ₹ 7,000 ₹ 8,000 - -

₹ 4,999 ₹ 5,999
Regular CA Vijay Sarda Hindi & Eng. 65 (1.5 Views) (1.5 Views)
6 Months 6 Months

STRATEGIC COST MANAGEMENT

37. AND PERFORMANCE EVALUATION Regular CA M K Jain English 110 - - - - - - ₹ 9,300

SCMPE [COSTING]
38. CA P.H.Mitkary Hindi & Eng. 140 - 6 Months - - ₹ 10,000 ₹ 11,000

12000 13000 15000 16000

39. CA Rakesh Agarwal English 246 - - - [1.1 Views] [1.1 Views] [1.8 Views] [1.8 Views]
(6 Months) (6 Months) (1 Year) 1 Year)

40. CA Ravi Shankar Hindi & Eng. 220 - - - ₹ 9,000 ₹ 10,000 - -

41. CA Ravi Sonkhiya Hindi & Eng. 255 - 12 Months ₹ 13,000 ₹ 14,000 - -

14500 15000
42. CA Sankalp Kansthiya English 210 - - - - -
(1.7 Views) (1.7 Views)

43. CA Vinod Reddy English 180 1 Year ₹ 6,000 - - - - -

44. Revision CA Ravi Sonkhiya Hindi & Eng. 117 - 6 Months ₹ 3,000 ₹ 4,550 - -

7000 7500
45. Revision CA Sankalp Kansthiya English 110 - - - - -
(1.7 Views) (1.7 Views)

46.

OUR SPECIAL CA FINAL GROUP II COMBOs

Cloud
Durations Watch Download COMBO
Sr Subject Pattern Faculty Language Validity MRP
(hrs.) Time & Printed PRICE
Books
COMBO I

Strategic cost management and

1 Regular CA Vinod Reddy English 180 1.5 Views 6 Months ₹ 6,000
performance evaluation (Costing)

Any One Elective Subject

2 Elective Paper CA Vinod Kumar Agarwal English 134 1.2 Views 1 Year ₹ 6,000
[FSCM or GFRS or Risk Management]
₹ 31,000 ₹ 20,000
3 Direct Tax Laws and International Taxation Regular CA Subodh Shah English 150 1.2 Views 1 Year ₹ 8,000

4 Indirect tax Laws [IDT] Regular CA Ankit Kumar Jain English 160 1.8 Views 1 Year ₹ 11,000

COMBO II

Strategic cost management and

1 Regular CA Rakesh Agarwal English 246 1.8 Views 1 Year ₹ 15,000
performance evaluation (Costing)

Any One Elective Subject

2 Elective Paper CA Vinod Kumar Agarwal English 134 1.2 Views 1 Year ₹ 6,000
[FSCM or GFRS or Risk Management]
₹ 40,000 ₹ 25,000
3 Direct Tax Laws and International Taxation Regular CA Subodh Shah English 150 1.2 Views 1 Year ₹ 8,000

4 Indirect tax Laws [IDT] Regular CA Ankit Kumar Jain English 160 1.8 Views 1 Year ₹ 11,000