A public limited was incorporated on 1 October 2009 to take over a business as a going concern as from 1 April 2009. The purchase price of the business for such acquisition was fixed on the basis of the balance sheet of the firm as at 31 March 2009 but the agreement provided that the vendors would get 80% of the profits earned prior to 1 October 2009 as compensation. The company’s accounts were made up to 31 March each year and the summarized trading and profit and loss accounts for the year ended 31 March 2010, disclosed the following results:
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a public limited was incorporated on 1 october 2009 to take over a business as a goi 618326
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Particulars |
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To Materials |
3,72,000 |
By Net Sales |
5,20,000 |
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Consumed |
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By Stock: |
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To Manufacturing |
97,000 |
Finished Goods |
98,000 |
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Wages |
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Incomplete |
12,000 |
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To Misc. Expenses |
37,200 |
Goods |
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To Carriage |
12,600 |
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Inwards |
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To Gross Profit c/d |
1,11,200 |
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6,30,000 |
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6,30,000 |
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To Salaries & |
36,600 |
By Gross Profit b/d |
1,11,200 |
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Establishment |
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Charges |
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To Office |
5,500 |
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Expenses |
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To Director”s Fees |
3,600 |
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To Bad Debts |
4,600 |
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To Debentures |
2,500 |
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Interest |
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To Commission & |
15,600 |
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Discounts |
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To Carriage |
3,200 |
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Outwards |
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To Depreciation |
20,600 |
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To Net Profit for the Year |
19,000 |
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1,11,200 |
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1,11,200 |
Further information available was that sales made by the company amounted to Rs.2,32,000. Bad debts amounting to Rs.2,200 were written off prior to 1 October 2009.
Prepare a statement showing the profits earned prior to and after incorporation. State also the amount of profits prior to 1 October 2009 payable to the vendors. How should the company deal with its share of profits in the year ending 31 March 2010.
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