Page 1 : 15, , , , , , , , , , , , , , , , , , nigr 10 Incorporaten, Profit Prior to Incorporation, , , , , ato the vendors for their assistance j),, ato, oo ay n pu l “, oe AO: 3 |st uly. Working Notes, (3) nets ern gs for four he ses from the vendors anq 1. Time Ratio, , mana y@~was tak ee ;, , Machinery valued at Rs. 0,00 urchased on Ist October, 1987. Acquisition Ast April, 1987, (4) ac : SRS 12,000 was P j Incorporation Ist Aug., 1987, , machinery cost g has been W! itten off. Year-ending 31st March, 1988, , 2 Pre-incorporation months Post-incorporation months, Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. = 8, , April, May June July = 4, , . at 10% P-*, “tion profits. :, Ratio 4:8:or 1:2 (Pre 1/3; Post 2/3), , Depreciation, , > incorpora, Ascertain the pre’ and ‘post’ mneorP, net 2. Sales Ratio, > olution , Ltd Pre-incorporation sales Rs. 90,000, N rat Compan) : acorporation s. 90,000 ., é The Nav Bha Pp ; _ Post-incorporation sales Rs. 3,60,000, re profit and Loss Accoun Ratio 9:36 or 1:4 (Pre 1/5; Post 4/5 ) ¢, a For the year ended 31st March, 1988 3. Depreciation, 9 2 Cr Old Plant Rs. 3,000 ( time basis ). New Plant Rs. 600 ( post-ine. ). |, £ Dr ee. Explanatory Notes ¢ ;, = | ‘ : a is of | Pre-in-|Post-1n- Basis of | Pre-1n- Post-in- 1. Nature of Profits, Basis 0 Te : Tacomes Alloca- | corp0-| corpo- The Profit Prior to Incorporation is a capital profit. It is not available for distribution as dividend. ~ 58, Expenses Alloca- corpo; corpo ren ration | ration The profit after incorporation is a revenue profit. It is available for dividend. :, tion | raion eR 2. Year-ending Provisions é, Rs. ERs. Reserve for bad debts, dividend & provision for taxes are year-ending decisions made by company., , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , 1,08,000 3. Interest on Purchase Consideration, e of purchase to the date of settlement,, , ross Profit |Sales 1: 4 |27,000, Interest at 6% p. a. is paid on Rs. 2,00,000 from the dat, , that is, for 6 months., Illustration 6 { Profit in lieu of interest : Goodwill : Unus, The Paper Products Private Ltd. was incorporated on_, take over a business as a going concern as from Ist March,, , Loss Account drawn on 31st December, 1987 was as under —, Rs., , ual accounting period ], 31st August, 1987, to, 1987. The Profit and, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , we Rs., e To Management Expenses 12,00 By Gross Profit 96,000, xS“To Rent 4,200_ |, »To Office Expenses 5,500, eT o Directors’ Fees 1,000, -&To Postage and Telegrams 500 S x ta, uTo Bad Debts 2,000 Le oy, To Free Samples > 800 Xu, Reserve for gato Formation Expenses” 2,000:, bad debts = o Debenture Interest e 1,000, Provision for slo Commission & Discount 800, a : J To Depreciation 3,000, a eee = eg To Carriage Outwards 1,600, Botan 6 Goodwill (written off) 10,000, wETo Dividend on shares 6,000, To Net Profit 45,600, Satin “47 = | 96,009, , 96,000, , ——_——, , , , , , , , , 7, ) The purchase consideration was agreed at Rs. 250,000 fs assets valued a