A firm which was carrying on business from 1st January, 2019 gets itself incorporated as a company on 1st April, 2019. The company decided to close its first books of accounts on 30th September, 2019. The gross profit fo

CS Executive · Company Accounts & Auditing Practices · PYQS · December 2019
A firm which was carrying on business from 1st January, 2019 gets itself incorporated as a company on 1st April, 2019. The company decided to close its first books of accounts on 30th September, 2019. The gross profit for the period is ₹56,000. The general expenses are ₹14,220; directors fees ₹12,000 p.a. and formation expenses is ₹1,500. Rent upto 30th June is ₹1,200 p.a., after which it increased to ₹3,000 p.a. Salary of the manager, who upon incorporation of the company was made a director, is ₹6,000 p.a. His remuneration thereafter is included in the above figure of fees to directors. Prepare Profit & Loss Account showing pre- and post-incorporation profits. The net sales are ₹8,20,000, the monthly average of which for the first three months of 2019 is one half of that of the remaining period.

Answer & Explanation:

Statement of Profit and Loss for 9 months Ended on 30th September, 2019 Particulars Basis Total (₹) Pre-Incorporation (₹) Post Incorporation (₹) Gross Profit (A) Sales 56,000 11,200 44,800 Less: Expenses General Expense Time 14,220 4,740 9,480 Directors Fees Post 6,000 - 6,000 Formation Expenditure Post 1,500 - 1,500 Rent Actual 1,350 300 1,050 Manager's Salary Pre 1,500 1,500 - Total Expense (B) 24,570 6,540 18,030 Net profit (A-B) 31,430 4,660 (Capital Profit) 26,770 (Revenue Profit) Working Notes: Sales Ratio = First 3 months sale : Next 6 months sales 3(one half) : 6(Double) 3 : 12 1 : 4 Time Ratio = 3:6 or 1:2 Director fees (Post Incorporation) 12,000 × 6/12 = 6,000 Rent for first 3 months = 100 × 3 = 300 For next 6 months = (100 × 3) + (3,000/12 × 3) = 300 + 750 = 1,050 Salary of Manager (Pre Incorporation) = 6,000 / 12 × 3 = 1,500

Topics: Company Accounts

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