Question

Need for calculating profit prior to incorporation

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.

Explanation:

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Answer 2

Answer:

The pre-incorporation profits made by the company are capital profits and not legally available for distribution as dividends, as a company cannot earn profits before it comes into existence. The profits earned by the company after incorporation are revenue profits and will be available for distribution as dividends

Explanation:

The term "Profit (Loss) Prior to Incorporation" refers to any profit or loss made prior to incorporation. This type of profit is recognised as a capital gain and cannot be dispersed as a commercial profit. Therefore, it cannot be paid out as a dividend.

You may assess the overall financial health of your company using a profit and loss statement, often known as an income statement, revenue statement, P&L statement, or just P&L. It is one of the three primary financial statements for firms, together with the cash-flow statement and balance sheet.

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