I.P.C.C. Accounts – (Gr.

I)
Profit Prior to Incorporation

Sr No Lecture No Content of lecture Duration In Minutes

1 1 Theory 20
2 2 Theory 26
3 3 Problem 24
4 4 Problem 28
5 5 Problem 24
6 6 Problem 26
7 7 Problem 25
8 8 Problem 47
9 9 Problem 19
10 10 Problem 34
Total 273=4 hrs. and 33 Min.

LEC: 1 (20 Minutes) Theory

LEC: 2 (26 Minutes) Theory

LEC: 3 (24 Minutes)

`PAWAN Ltd. Was incorporated on 1st March, 2010 and received its certificate of
commencement of business on 1st April, 2010. The company bought the business of
promod with effect from 1st November, 2009. From the following figures relating to the
year ending October 2010, find out the profit available for dividends:
i) Sales for the year were Rs. 3,00,000 out of which sales up to 1 st March were Rs.
1,25,000.
ii) Gross profit for the year were Rs. 90,00,000.
iii) Expenses debited to the profit and loss account were :
Particulars Rs.
Rent 4500
Salaries 7,500
Director’s Fees 2,400
Interest on Debentures 2,500
Audit Fees 750
Discount on Sales 1,800
Depreciation 12,000
General Expenses 2,400
Advertising 9,000
Stationery & Printing 1,800
Commission on sales 3,000
Bad debts *750
Interest to vendor on purchase consideration up to 1.5.2010,1500
*Rs, 250 relate to debts created prior to incorporation.

LEC: 4 (28 Minutes)

VEEKAY PRIVATE LIMITED was incorporated on 1.8.95. This company agreed to take
over business of M/s. JAY VIJAY & COMPANY as going concern, effective from 1.4.95.
The agreement also provides that vendors are entitled to 60% of profits for the period
upto 1.8.95.
The profit and loss account for the year ended 31.3.96 is ...
To stock 30,000 By Sales 3,00,000
To Materials consumed 1,20,000 By Stocks 42,000

1
 To wages 30,000
To Factory exp. 42,000
To Gross profit 1,20,000
3,42,000 3,42,000
To salaries 30,000 By Gross profit 1,20,000
To Rent 9,000 By Profit on 20,000
To Office exp. 6,000 sale of
To sales comm. 15,000 Investments
To Bad Debts 5,000
To Directors Fees 8,000
To Depreciation 18,000
To Debenture Int. 8,000
To Interest to Vendor 6,000
To Net profit 35,000
1,40,000 1,40,000
Additional Information:
1. Monthly sales for Oct, 95 to March 96 is 150% of monthly sales for April, 95 to
Sept.95.
2. Bad debts is in respect of sales affected two years ago
3. Investments was sold on 1st Nov.,95.
4. Consideration to vendors was paid on 1st Oct,95
5. Rent was increased from 500 p.m. to Rs.1,000 p.m. effective from 1.10.95.
Prepare the profit and Loss account. (O-96)

LEC:5 (24 Minutes)

The Madras Ltd., was registered on 1st May, 1992 to take over the business of Mahesh
Brothers form 1st January 1992. The company was granted certificate to commence
business on 1st June 1992.
From the following information calculate the profit earned by the company in the `pre’
and post’ incorporated periods.
a) The sales for the year ended 31st December 1992, amounted to Rs.96,000. The
trend of the sales was as under.
January and February twice the average monthly sales
June and July one and a half times the average sales in each months.
September, October and November half the average sales in each months.
b) Cost of goods sold Rs.36,000
c) Salaries Rs.11,200.
(There were 4 employees in the pre-incorporation period and 5 employees in the
post incorporation period)
d) Bad debts Rs.2,000.
e) Interest on purchase price paid by the company to Mahesh Brothers on 1 st July.
1992 Rs.12,000.
f) Provision for Income-Tax Rs.4,000.
g) Expenses exclusively related to company Rs.2,000.
h) Advertising Rs.12,000. (Rs.1,000 per month under a contract)
i) Commission on sales Rs.4,000.
j) Depreciation on machinery at 10% p.a. Rs.3,500. (Machinery taken over from
vendor Rs.30,000 and purchased on 1st July, 1992 Rs.10,000.)

LEC:6 (26 Minutes)

Mahesh Ltd. was incorporated on 1st March 2002 to acquire a timber merchant’s
business as from 1st January 2002. The purchase consideration was agreed at Rs.
6,00,000 to be satisfied by the issue of 30,000 equity shares of Rs. 10 each and 3,000
– 6% Debentures of Rs. 100 each.
The following Trading and Profit & Loss A/c for the year ended 31 st December 2002 is
presented to you.

Particulars Rs. Particulars Rs.

To Material Consumed 7,74,000 By Sales 15,00,000
To Gross Profit 7,26,000

2
 15,00,000 15,00,000
Rs. Rs.
To Salaries to Staff 3,40,000 By Gross Profit 7,26,000
To Office Expenses 24,000 By Interest on Investment 6,000
To Rent 21,000 By Share Transfer Fees 1,000
To Selling Expenses 66,000
To Carriage Outwards 11,000
To Debenture Interest 13,500
To Directors Fees 24,000
To Preliminary Exp. 28,700
To Interest on Purchase 9,000
consideration
To Loss on Sale of Furniture 3,000
To Audit Fees 30,000
To Net Profit 1,62,800
7,33,000 7,33,000
You obtain the following information:
(1) Sales are of one commodity at a fixed price and the average of the monthly
sales for the first two months was one-half of the average of the monthly sales
for the reminder months of the year.
(2) The shares and debentures were issued to the vendor on 1 st April 2002.
(3) Interest at 6% per annum was paid on the purchase consideration from 1st
January 2002 to the date settlement.
(4) Furniture was sold on 1st February 2002.
(5) Interest on investment was in respect of investments made by the company on
1st April 2002.
(6) The number of staff in the pre-incorporation period was 10 and it was increased
to 15 in the post-incorporation period. (Assume that rate of payment is same in
all cases)
(7) Rent upto 31st October was Rs. 18,000 per year after which it was increased to
Rs. 36,000 per year.
Prepare Profit & Loss Account in columnar form showing distinctly the allocation
of profits between pre-incorporation and post-incorporation periods, indicating
the basis of allocation of each item. (O-03)

LEC:7 (25 Minutes)

The following information is obtained from the books of `X' Private Limited for the year
0ended 31st March, 1993.
Sales ( April 1992 to March 1993 ).
April 1,20,000 August 1,80,000 December 2,10,000
May 1,50,000 September 2,00,000 January 2,50,000
June 1,70,000 October 2,20,000 February 2,90,000
July 1,60,000 November 1,50,000 March 3,00,000
Expenses including depreciation for the year
Rs.
Salaries 1,09,500
Traveling 21,600
Advertising 8,000
Bad Debts 2,300 (Including Rs.1,500 for sales
effected in pre-incorporation
Directors fees 3,500 period)
Miscellaneous Exp. 60,000
Contribution to
P.F.,E.S.I.etc. 5,250
Carriage outward 34,400
Depreciation 27,000
Audit fees 2,500
Selling Commission 24,000
Sales invoice were prepared at cost plus 25% up to June,1992 and thereafter at cost
plus 33 1/3%. The company was incorporated on 1st. August 1992 by taking over the
running business of a partnership with effect from 1st. April, 1992.

3
 You are required to prepare the Profit & Loss Account of the company for the year
ended 31st. March 1993 showing pre-incorporation and post-incorporation profits
indicating your basis of allocation.

LEC:8 (47 Minutes)

The partner Adarsh Agencies decided to convert the partnership into Private Limited
Company named Rameshwar Company Pvt. Ltd. With effect from 1 st January, 2012.
The consideration was agreed at Rs. 2,34,00,000 based on firm’s Balance Sheet as on
31st December, 2011. However, due to some procedural difficulties, the company could
be incorporated only on 1st April, 2012. Meanwhile, the business was continued on
behalf of the company and the consideration was settled on the of incorporation with
interest at 12% p.a. The same books of account were continued by the company, which
closed its accounts for the first time on 31 st March, 2013 and prepared the following
summarized profit and Loss account:
Rs Rs
To Cost of Goods Sold 3,27,60,000 By sales 4,68,00,000
To Salaries 23,40,000
To Depreciation 3,60,000
To Advertisement 14,04,000
To Discount 23,40,000
To Managing Directors 1,80,000
Remuneration
To Miscellaneous Office 2,40,000
To Office cum Showroom Rent 14,40,000
To Interest 19,02,000
To Profit 38,34,000
4,68,00,000 4,68,00,000
The company’s only borrowing was a loan of Rs 1,00,000 at 12% p.a. to pat the
purchase consideration due to the firm and for working capital requirements. The
company was able to double monthly average sales of the firm from 1 st April 2012, but
the salaries trebled from the date. It had to occupy additional space from 1 st July, 2012
for which rent was Rs. 60,000 month.
Prepare a profit and loss account in columnar form apportioning costs and revenue
between pre incorporation and post-incorporation periods. (Dec 2012 – 7 Marks)

LEC:9 (19 Minutes)

New Ventures Ltd., was incorporated on 1st January, 1983 with an Authorised Capital
of 10,000 Equity Shares of Rs. 10 each to take over the running business for Rundown
Bros, as from 1st October, 1982. The following is the summarised P & L A\c for the
year ended 30th September, 1983.
Sales
1st October, 1982 to 31st December, 1982 6,000
1st January, 1983 to 30th September, 1983. 19,000 25,000
Cost of Sales for the year 16,000
Administrative Expenses 1,768
Selling Commission 875
Goodwill written off 200
Interest paid to Vendors(Loan repaid on 1st
Feb 983) 373
Distribution Expenses (60% Variable) 1,250
Preliminary Expenses written off 330
Debenture Interest 320
Depreciations 444
Director's Fees 100
21,660
Net Profit 3,340
======
The company deals in one type of product. The unit cost of sales was reduced by 10 %
in the post incorporation period as compared to the pre-incorporation period in the
year.
4
 You are required to prepare a statement apportioning the net profit amount between
pre-incorporation and post-incorporation periods showing the basis of apportionments.
showing the basis of apportionment.

LEC:10 (34 Minutes)

SAF Ltd. was incorporated to take over the running business of AUS Bros. with effect
from 1st December 2001. However, due to some procedural difficulties, the company
was incorporated on 1st August 2002.
Meanwhile the business was continued on behalf of the company and same books of
accounts were continued by the company which closed its accounts for the first time on
31st March 2003.
Profit and Loss Account for the period 1st December 2001 to 31st March 2003
Particulars Rs. Particulars Rs.
To Office Salaries 2,10,000 By Gross profit b/d 9,00,000
To Partner’s Salaries 60,000 By Share Transfer Fees 10,000
To Advertisement 54,000
To Printing & Stationery 15,000
To Travelling Exp. 40,000
To Office Rent 1,24,000
To Electricity charges 9,000
To Auditors Remuneration 6,000
To Directors Fees 10,000
To Bad Debts 12,000
To Commission on sales 45,000
To Preliminary Exps. 7,000
To Debenture Interest 16,000
To Interest on capital 18,000
To Depreciation 21,000
To Net Profit 2,63,000
9,10,000 9,10,000
Additional Information:
(A) Total Sales for the period, which amounted to Rs. 90,00,000 arose up to the
date of incorporation, whereafter they recorded an increase of 1/4th in the
remaining period.
Gross profit was at a uniform rate of 10% of selling price throughout the period.
Commission of 0.5% was paid on sales.
(B) Office rent was paid @Rs. 84,000 p.a. up to 30 th September 2002, and
thereafter it was paid @Rs. 1,08,000 p.a.
(C) Travelling Expenses include Rs. 18,000 towards sales promotion.
(D) Bad Debts written of:
(a) A debt of Rs. 4,000 taken over from the vendor.
(b) A debt of Rs. 8,000 in respect of goods sold in September 2002.

(E) Depreciation includes Rs. 6,000 for assets acquired in the post-incorporation
period.
Prepare Profit & Loss Account in columnar form showing distinctly the allocation of
profits between pre-incorporation & Post-incorporation periods, indicating the basis of
allocation of each item. (APRIL 2004 (1)