Why is it necessary to find the profit prior and after incorporation?
It is a capital profit and 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.
What is profit prior to and after incorporation?
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’.
How do you treat profit prior to incorporation and profit after incorporation?
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. Hence, it cannot be distributed by way of dividend.
How is profit prior to incorporation treated?
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.
How do you calculate profit before incorporation?
Profit of a business for the period prior to the date company into existence is referred to as Pre-Incorporation profit. Hence prior period item are those item which is done before incorporation of the company. Profit prior to incorporation is the
profit earned or loss suffered during the period before incorporation
.
What do u mean by profit prior to incorporation?
• “Profit prior to incorporation” is
the profit earned
.
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.
How is profit prior to incorporation treated as Mcq?
Capital Profit
: The profit earned up to the date of incorporation of the company is a capital profit, because these profits have been earned before the company came into existence. Such profits are known as profit prior to incorporation and transferred to the Capital Reserve a/c.
What are the different ratio used in ascertaining profit prior to incorporation?
(ii) The ratio of time
is 4 months (upto 1st March) to 8 months or 1 : 2 except in case of interest to vendor
. (iii) Interest paid to vendor is for 6 months out of which interest for four months (upto 1st March) is charged to the period prior to incorporation. (iv) Bad debts have been allocated as per the instruction.
Is there is a loss prior to incorporation it will be debited to?
If there is a loss, (a) it is either written off by debit to
the Profit and Loss Account
or to a special account described as “Loss Prior to Incorporation” and show as an “asset” in the Balance Sheet, (b) Alternatively, it may be debited to the Goodwill Account.
For which purpose profits 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 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 do u mean by certificate of incorporation?
A certificate of incorporation
confirms that your company is a legal entity
. Also, it’ll show that the company constituted correctly. As one opens a bank account, he/she needs to take his/her identity documents, certificate of incorporation, and other documents about company formation.
Should return on sales be high or low?
Most companies are happy to get a
5-10% return on sales
. Obviously, if you’re unprofitable and losing money, your bottom line is going to be a negative number. So your return on sales will also be a negative number—but if your gross margin is positive, then increasing sales will help the situation.
Expenses Wholly applicable to pre-incorporation period – All expenses wholly applicable to the post-incorporation period such as
manager directors salary, directors fees, debenture interest, discount on issue of shares or debentures
, preliminary expenses of written off, under writing commission written off, good will …
What is the treatment of preliminary expenses?
Preliminary expenses are considered as prior expenses before the beginning of business and it will be treated just like
depreciation
but the name is using as amortization. It has the same treatment of depreciation. Preliminary expenses are the expenses that spent by the promoters before the incorporation of company.
What is meant by divisible profit?
Profit or a portion of profit that can be legally distributed as a dividend to the shareholders
is known as Divisible Profit. All profit of the company is not divisible and number of factors should be considered while determining divisible profit of the company.
