Q.1.
Profit Prior to Incorporation Sum
Date of formation : 1st Jan. 2024 (instead of 1988)
Solution 1:
Working Note 1: Calculation of Time Ratio =
J F M A M J J A S O N D
1.1.2024 to 30.4.2024
Pre-incorporation Period
4 :8
4x1 :4x2
Time Ratio = 1: 2
Working Note 2: Calculation of Interest to Vendor Ratio:
J F M A M J
4:2
= 2x2 : 2 x 1
= 2:1
Interest to Vendor = Rs.15,000
Pre-Incorporation period = Rs.15,000 x 2/3 = Rs.10,000
Post Incorporation period = Rs.15,000 x 1/3 = Rs.5,000
Working Note 3: Sales Ratio:
J F M A M J J A S O N D
Assume Pre-Incorporation Period Sales to be Rs.x
So Post Incorporation Period Sales = x + 25/100 x = 1x + 0.25 x = 1.25x
Pre-incorporation Period Sales =
Post Incorporation Period Sales =
J F M A M J J A S O N D
X X X X 1.25x 1.25x 1.25x 1.25x 1.25x 1.25x 1.25x 1.25x
4X : 10 X
4 : 10
= 2x2 : 2x5
Sales Ratio = 2:5
In the books of Pronto Ltd. Profit and Loss for the year ended 31st Dec.2024
Dr. Profit and Loss Account for the year ended 31st December, 2024
Cr.
Particulars Pre- Post- Particulars Pre- Post-
Incorporation Incorporation Incorporation Incorporation
Period (Rs.) Period (Rs.) Period (Rs.) Period (Rs.)
To Rent and Rates (Time 4,000 8,000 By Gross Profit b/d 1,40,000 2,10,000
Ratio 1:2)(12,000 x 1/3, (Sales Ratio) (2:5)
12,000 x 2/3)
To Salaries(Time Ratio 8,000 16,000
1:2) (24,000 x 1/3,
24,000 x 2/3)
To Director’s Fees (Post --- 6,000
incorporation Period)
To Interest on Debentures --- 5,000
(Post incorporation
Period)
To Audit Fees (Post --- 4,500
incorporation Period)
To Discount Allowed 3,000 7,500
(Sales Ratio) (2:5)
(10,500 x 2/7)
To Depreciation (Time 18,000 36,000
Ratio) (1:2) (Rs.54,000 x
1/3, 54,000 x 2/3)
To General Expenses 3,000 6,000
(Time Ratio) (1:2)
(Rs.9,000 x 1/3, 9,000 x
2/3)
To Advertising (Sales 9,000 22,500
Ratio) (2:5) (31,500 x
2/7, 31,500 x 5/7)
To Carriage Outward 2,000 5,000
(Sales Ratio) (2:5) (7,000
x 2/5, 7,000 x 5/7)
To Printing and 2,000 4,000
Stationery (Time Ratio)
(1:2) (6,000 x 1/3, 6000 x
2/3)
To Commission on Sales 6,000 15,000
(Sales Ratio) (2:5)
(21,000 x 2/7, 21,000 x
5/7)
To Postage and Telegram 2,500 5,000
(Time Ratio)(1:2) (7,500
x 1/3, 7,500 x2/3)
To Bad Debts (Sales 3,000 7,500
Ratio) (2:5) (10,500 x
2/7, 10,500 x 5/7)
To Preliminary Expenses --- 4,500
(Post incorporation
Period)
To Telephone Charges 4,000 8,000
(Time Ratio) (1:2)
(12,000 x 1/3, 12,000 x
2/3)
To Managing Director’s --- 20,000
Remuneration (Post
incorporation Period)
To Repairs and Renewals 2,500 5,000
(1:2) (Time Ratio) (7,500
x 1/3, 7,500 x 2/3)
To Interest to Vendors 10,000 5,000
(W.N.2)
To Net Profit 23,000 6,000
Total 1,40,000 2,10,000 Total 1,40,000 2,10,000
Q.5.
Q.2. Year to be taken as 2024 (instead of 1988)
Solution:
In the books of Snowtex Ltd.
Profit and Loss Account to be presented accordingly.
Working Note No.1:
Time Ratio: Date of Commencement of Business : 1-1-2024
Date of Incorporation: 1-5-2024
J F M A M J J A S O N D
Pre-incorporation Period (4 months)
4: 8
i.e. 1:2 = Time Ratio
2. Sales Ratio
J F M A M J J A S O N D
Total Sales – Rs.30,00,000
Pre-Incorporation Sales – Rs.9,00,000
Post Incorporation Sales – Rs.21,00,000
Pre-Inc: Post Inc Sales
9: 21
3x 3: 3 x 7
3: 7
