WORKSHEET 3 : DIVISION OF INCOME / EXPENSES No. Post-Incorporation Ratio of Time Ratio of Sales 1. Fees to directors Fixed Expenses Gross Profits Interest to vendor 2. Salary to directors Administrative Exp. Variable Expenses Salary to vendor 3. Interest on Debentures Rent Selling Overheads 4. Discount on debentures w/o. Insurance Salary to 5. Preliminary Expenses w/o. Printing salesmen 6. Shares Issue Expenses w/o. Depreciation Sales commission 7. Share Transfer Fees received Audit fees Advertisement 8. Appropriations by company Postage Freight outward Discount Allowed Notes : Audit fees should be divided, in the opinion of the authors, in the Ratio of Time. (Some authorities charge audit fees to post-incorporation period, because audit is compulsory for a limited company. Further, fees for Tax Audit which is compulsory if the turnover exceeds prescribed limit, are divided in Sales Ratio.) Interest to vendors (interest on purchase consideration) from the due date of payment upto the date of incorporation should be charged to the pre-incorporation period. Income-tax is charge against profits. It is calculated as Profits x Rate of Tax (e.g. 30% of profits). Hence, income-tax, should be divided between pre and post incorporation periods in the ratios of respective profits. Problem No. 1 Goodwill w/off Profit before making the following adjustment were as under: Pre-Incorporation Period Post-Incorporation Period Profit Rs.37,000 Rs.18,600 Adjustments to be made: The purchase consideration was agreed at Rs.2,50,000 for assets valued at Rs.2,40,000, 20% of the goodwill is to be written off. In lieu of interest on purchase consideration, the vendor would get 40% of the profit earned prior to incorporation. Find out profit prior to incorporation and after incorporation.
WORKSHEET 3 : DIVISION OF INCOME / EXPENSES No. Post-Incorporation Ratio of Time Ratio of Sales 1. 2. 3. 4. 5. 6. 7. 8. Interest to vendor Salary to vendor Fees to directors Salary to directors Interest on Debentures Discount on debentures w/o. Preliminary Expenses w/o. Shares Issue Expenses w/o. Share Transfer Fees received Appropriations by company Fixed Expenses Administrative Exp. Rent Insurance Printing Depreciation Audit fees Postage Gross Profits Variable Expenses Selling Overheads Salary to salesmen Sales commission Advertisement Freight outward Discount Allowed Notes : Audit fees should be divided, in the opinion of the authors, in the Ratio of Time. (Some authorities charge audit fees to post-incorporation period, because audit is compulsory for a limited company. Further, fees for Tax Audit which is compulsory if the turnover exceeds prescribed limit, are divided in Sales Ratio.) Interest to vendors (interest on purchase consideration) from the due date of payment upto the date of incorporation should be charged to the pre-incorporation period. Income-tax is charge against profits. It is calculated as Profits x Rate of Tax (e.g. 30% of profits). Hence, income-tax, should be divided between pre and post incorporation periods in the ratios of respective profits. Problem No. 1 Goodwill w/off Profit before making the following adjustment were as under: Pre-Incorporation Period Post-Incorporation Period Profit Rs.37,000 Rs.18,600 Adjustments to be made: The purchase consideration was agreed at Rs.2,50,000 for assets valued at Rs.2,40,000, 20% of the goodwill is to be written off. In lieu of interest on purchase consideration, the vendor would get 40% of the profit earned prior to incorporation. Find out profit prior to incorporation and after incorporation.
Profit%20Prior%20to%20Incorporation.docx