Understanding Profits Prior to Incorporation in Company Law

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.

• Profits Prior to Incorporation
• Companies Act
• Accounting Procedures
• Legal Provisions
• Guest Lecture

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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

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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

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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

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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

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