Green Ltd. was established on 1st August, 2013 and received its certificate of commencement of business on 1st November, 2013. The company bought the business of Purple & Co. with effect from 1st April, 2013. From th

CS Executive · Company Accounts & Auditing Practices · PYQS · June 2015
Green Ltd. was established on 1st August, 2013 and received its certificate of commencement of business on 1st November, 2013. The company bought the business of Purple & Co. with effect from 1st April, 2013. From the following information for the year ended on 31st March, 2014, find out the profit available for dividends : (i) Sales for the year ₹12,00,000 out of which sales upto 1st August, 2013 was ₹5,00,000 (ii) Gross profit for the year was ₹3,60,000 (iii) Expenses shown in the statement of profit and loss were as under: Salaries ₹24,000 Rent ₹12,000 Audit fee ₹12,000 Directors' fee ₹9,600 Interest on debentures ₹10,000 Commission ₹19,200 Depreciation ₹51,000 General expenses ₹16,800 Bad debts (₹1,000 prior to incorporation) ₹3,000

Answer & Explanation:

Statement showing allocation of Pre and Post Incorporation Profits Particulars Basis of Allocation Pre- Incorporation Profits Post-incorporation Profits Gross Profit Sales 1,50,000 2,10,000 Less: Expenses Salary Time 8,000 16,000 Rent Time 4,000 8,000 Audit Fees Time 4,000 8,000 Director's Fees Post Inc — 9,600 Interest on debentures Post Inc — 10,000 Commission Sales 8,000 11,200 Depreciation Time 17,000 34,000 General expenses Time 5,600 11,200 Bad debts Given 1,000 2,000 Total Expenses 47,600 1,10,000 Net Profit 1,02,400 1,00,000 Working Notes: Ratio of Sales = 5,00,000 : 7,00,000 = 5:7 Ratio of Time = 4 : 8

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