Question

How Is Profit Prior To Incorporation Treated As

Answer 1

Answer:

Profit of a business for the period prior to the date company into existence is referred to as Pre-Incorporation profit. Hence prior period item are those item which is done before incorporation of the company. Profit prior to incorporation is the profit earned or loss suffered during the period before incorporation. It is a capital profit and not legally available for distribution as dividend because a company cannot earn a profit before it comes into existence.

Explanation:

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Answer 2

How Is Profit Prior To Incorporation Treated As?

The correct answer is :

Profit Prior To Incorporation Treated As 'Capital Reserve'.

Explanation :

Profit before incorporation is treated as 'Capital Reserve.'

A capital reserve is that type of account on a company's balance sheet, which is related to any long-term capital investment projects. This account is supposed to be reserved for any big project or any big projected expenditure in future.

Profit before incorporation is profit or loss earned during the period prior to incorporation. Such profit is not legally available for distribution in the form of dividends, as it is a profit before the formation of the company and no corporation can make a profit before it comes into existence. Therefore, there is no legal obligation for this benefit.

That is why the profit before incorporation is treated as capital reserve.

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