What Are The Different Ratios Used In Ascertaining Profit Prior To Incorporation? - Fixanswer

Gross profit minus the total of expenses for the pre-incorporation period will give the profit prior to incorporation. The entry to be passed will be: Profit Prior to Incorporation will appear in the balance sheet along with other capital profits.

How do you calculate time ratio in profit before incorporation?

A statement should be prepared for calculating the amount of net profit before and after incorporation separately on the following principle: (i) Gross Profit should be allocated for the two periods on the basis of sales ratio which will present the gross profit for the two separate periods, viz.

What is sales ratio in profit prior to incorporation?

Calculation of ratio of sales: Let the average sales per month in pre – incorporation period be x Then the average sales in Post – incorporation period are 2x. Thus total sales are ( 3 x X ) + ( 12 x 2X ) or 27X .

What are the different ratios used in ascertaining profit prior incorporation?

Steps may be suggested for ascertaining profit or loss prior to incorporation:
Step I:
Step II:
Calculate the following two ratios:
(i) Sales Ratio:
(ii) Time Ratio:
Step III:

Why profit prior to incorporation is calculated?

or loss suffered during the period before incorporation. It is a capital profit and is not legally available for distribution as dividend because a company cannot earn a profit before it comes into existence. Profit earned after incorporation is revenue profit, which is available for dividend.

How is profit prior to incorporation treated as?

Explanation: Thus, any profit/loss made before the incorporation is known as “Profit (Loss) Prior to Incorporation” which is treated as a capital profit and the same cannot be distributed as business profit. ... The same is to be transferred to Capital Reserve or may be adjusted against Goodwill.

What is meant by pre and post incorporation profit?

In short, the profit earned after the date of purchase of business is called „Post-incorporation or Post-acquisition profit‟ and the profit earned before the date of purchase of business is termed as „Pre-incorporation profit‟.

What is loss prior to incorporation?

Profits/ Losses

When a running business is taken over by the promoters of a company, as at a date prior to the date of incorporation of company, the amount of profit or loss of such a business for the period prior to the date the company came into existence is referred to as pre -incorporation profits or losses.

For which purpose profit prior to incorporation may not be used?

The profit made before incorporation is not available for distribution as dividends to the shareholders of the purchasing company because it is treated as capital profit.

What is time ratio give an example?

Examples: a marathon runner runs the 42.195 km (enter 42.195 at Amount 1) in 3 hours and 42 minutes (enter at time span 1). So, for 10 km (enter 10 at Amount 2), he needs 52 minutes and 37 seconds (time span 2 is calculated). ... In three minutes, those are 3331 miles, in one hour 66623 miles, which gives the speed in mph.

What is the treatment of preliminary expenses?

Normally preliminary expense are treated as intangible asset and shown on the asset side of the balance sheet under the head Miscellaneous asset. The preliminary expenses are amortized or written off in five years for the purpose of Income Tax in India.

What is time ratio and sales ratio?

Time ratio is calculated by taking into account the pre-incorporation period and post-incorporation period . ... Sales ratio is calculated by taking into account the sales of the pre-incorporation period and sales of the post-incorporation period.

How is sales ratio calculated?

By dividing the costs of selling to the total value of sales – and then multiplying the result by 100, you will get the ratio you were looking for. So, the formula should look like this: (Cost of selling / Total value of sales) x 100 . Keeping it simple and basic is the right way to go.

What is sales ratio formula?

The ratio shows how much investors are willing to pay per dollar of sales. It can be calculated either by dividing the company’s market capitalization by its total sales over a designated period (usually twelve months) or on a per-share basis by dividing the stock price by sales per share .

How is selling ratio calculated?

Calculate the cost of sales ratio by dividing the cost of sales by the total value of sales . Then multiply the result by 100 to get the percentage. Using percentages rather than whole numbers makes the data easier to read and compare.