Understanding Profits Prior to Incorporation in Company Law

 
Guest Lecture at
Guest Lecture at
        Smt. Maniben M.P. Shah Women's College of
        Smt. Maniben M.P. Shah Women's College of
Arts & Commerce,
Arts & Commerce,
Matunga.
Matunga.
By
By
CS Charul Y. Patel
CS Charul Y. Patel
Asst. Professor,
Asst. Professor,
 Department of Accountancy,
 Department of Accountancy,
       SIES College of Commerce & Economics,
       SIES College of Commerce & Economics,
Sion - East.
Sion - East.
 
1
 
PROFITS PRIOR TO
INCORPORATION
 
 
 
 
 
2
 
LEARNING OBJECTIVES :::::::
 
Understand the meaning of Profits Prior to
Incorporation
 
Learn various provisions of the Companies Act
relating to Profits Prior to Incorporation
 
Familiarize yourself with accounting procedure
and modes of accounting
Understand the logic behind the Profits Prior to
Incorporation
 
Learn the accounting treatment for Profits Prior
to Incorporation
 
3
 
INCORPORATION OF  COMPANY
 
4
 
MEANING :
 
5
 
6
 
7
 
NATURE OF PPI :
 
8
 
TREATMENT OF PPI :
 
9
 
USE OF PPI :
 
10
 
LOSS PRIOR TO INCORPORATION
 
11
 
TIME RATIO & SALES RATIO
 
12
 
13
EXAMPLE - IF THE DATE OF PURCHASE OF A RUNNING BUSINESS IS 1
ST
JANUARY 2005 , INCORPORATION IS 30
TH
 JUNE 2005 AND THE YEAR
ENDING IS 31
ST
 DECEMBER 2005.  THE DATE OF COMMENCEMENT OF
BUSINESS IS 31
ST
 OCTOBER 2005
 
ALLOCATION OF EXPENSES
 
14
 
ALLOCATION OF EXPENSES
 
15
 
16
 
17
Dt of Purchase of Co. : 01/10/08, Dt of Inc. : 01/02/09, Dt of commencement : 01/03/09 Sales from 01/10/08
to 01/02/09 : Rs. 2,00,000, Total Sales Rs. 12,00,000.  Total Gross Profit Rs. 1,20,000. Year ending on 31
st
 May.
 
18
 
Summary
 
STEPS :
1)
Calculate Time Ratio
2)
Calculate Sales Ratio
3)
Prepare Profit & Loss Account with columns
for Profit prior to incorporation (PPI) and
Profits Post incorporation
4)
Allocate expenses
5)
Compute the Profit prior to incorporation
(PPI) to be transferred to Capital Reserve
Account and Profits Post incorporation to
be transferred to Goodwill Account
 
19
 
20
Slide Note

2/3/2016

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This guest lecture at Smt. Maniben M.P. Shah Women's College delved into the topic of Profits Prior to Incorporation, covering definitions, legal provisions, accounting procedures, and treatment methods. The learning objectives included comprehending the concept, familiarizing with Companies Act regulations, and grasping the accounting logic behind profits before incorporation.


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  1. Guest Lecture at Smt. Maniben M.P. Shah Women's College of Arts & Commerce, Matunga. By CS Charul Y. Patel Asst. Professor, Department of Accountancy, SIES College of Commerce & Economics, Sion - East. 1

  2. PROFITS PRIOR TO INCORPORATION 2

  3. LEARNING OBJECTIVES ::::::: Understand the meaning of Profits Prior to Incorporation Learn various provisions of the Companies Act relating to Profits Prior to Incorporation Familiarize yourself with accounting procedure and modes of accounting Understand the logic behind the Profits Prior to Incorporation Learn the accounting treatment for Profits Prior to Incorporation 3

  4. INCORPORATION OF COMPANY 4

  5. MEANING : 5

  6. 6

  7. 7

  8. NATURE OF PPI : 8

  9. TREATMENT OF PPI : 9

  10. USE OF PPI : 10

  11. LOSS PRIOR TO INCORPORATION 11

  12. TIME RATIO & SALES RATIO 12

  13. EXAMPLE - IF THE DATE OF PURCHASE OF A RUNNING BUSINESS IS 1ST JANUARY 2005 , INCORPORATION IS 30TH JUNE 2005 AND THE YEAR ENDING IS 31ST DECEMBER 2005. THE DATE OF COMMENCEMENT OF BUSINESS IS 31ST OCTOBER 2005 13

  14. ALLOCATION OF EXPENSES 14

  15. ALLOCATION OF EXPENSES 15

  16. 16

  17. Dt of Purchase of Co. : 01/10/08, Dt of Inc. : 01/02/09, Dt of commencement : 01/03/09 Sales from 01/10/08 to 01/02/09 : Rs. 2,00,000, Total Sales Rs. 12,00,000. Total Gross Profit Rs. 1,20,000. Year ending on 31st May. 17

  18. 18

  19. Summary STEPS : 1) Calculate Time Ratio 2) Calculate Sales Ratio 3) Prepare Profit & Loss Account with columns for Profit prior to incorporation (PPI) and Profits Post incorporation 4) Allocate expenses 5) Compute the Profit prior to incorporation (PPI) to be transferred to Capital Reserve Account and Profits Post incorporation to be transferred to Goodwill Account 19

  20. 20

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