Sai Deep Industries Private Ltd. was incorporated on 1st February, 2019. It took over the proprietary business of Sai Deep, with effect from 1st January, 2019. The Balance Sheet of Sai Deep as at 31st December 2018 is as

CS Executive · Company Accounts & Auditing Practices · PYQS · June 2021
Sai Deep Industries Private Ltd. was incorporated on 1st February, 2019. It took over the proprietary business of Sai Deep, with effect from 1st January, 2019. The Balance Sheet of Sai Deep as at 31st December 2018 is as follows: Liabilities (₹) Assets (₹) Capital 8,63,000 Sundry debtors 51,400 Trade Creditors 34,000 Building 2,20,000 Loans 17,000 Machinery 6,00,000 Creditors for Expenses 5,000 Loss 47,600 9,19,000 9,19,000 It was agreed to pay ₹9,00,000 in equity shares to Sai Deep. The company decided to close its first year's accounts as at 31st December, 2019. The following are the further details furnished to you: Sales ₹6,00,000; Purchase ₹2,80,000; Salaries and Wages ₹80,000; General expenses ₹64,000; Freight ₹9,400; Interest paid ₹16,000; Inventories ₹44,000; Additions to building ₹76,000; Depreciation may be provided at 10% on assets including additions. The Gross Profit and all expenses are apportioned on the basis of Time Ratio. The Company has requested you to prepare: Statement of Profit and Loss showing separately Pre-incorporation and Post-incorporation Profits for the year ending 31st December, 2019.

Answer & Explanation:

Sai Deep Industries (Pvt.) Ltd. Statement of Profit and Loss for the year ended 31st December, 2019 Time Ratio = 1:11 Pre incorporation period = 1 months (January 2019) Post incorporation period = 11 months (1st Feb. 2019 to 31st Dec. 2019) Particular Note No. Total (₹) Pre-Incorporation (₹) Post-Incorporation (₹) Gross Profit (A) 1 3,54,600 29,550 3,25,050 Less: Expenses (B) Salaries and Wages 80,000 6,667 73,333 General Expenses 64,000 5,333 58,667 Interest Paid 16,000 1,333 14,667 Depreciation on Building 2 29,600 2,467 27,133 Depreciation on Machinery 60,000 5,000 55,000 2,49,600 20,800 2,28,800 Net Profit (A-B) 1,05,000 8,750 96,250 Capital Profit Revenue Profit Capital Reserve Statement of profit & Loss A/c Working Notes: (1) Calculation of Gross Profit ₹ Sales 6,00,000 Purchase 2,80,000 Freight 9,400 2,89,400 Less: Closing Inventories (44,000) (2,45,400) Gross Profit 3,54,600 (2) Depreciation on Building = 10% (₹2,20,000 + ₹76,000) = ₹29,600

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