Question

profit prior to incorporation​

Answer 1

Explanation:

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Answer 2

Explanation:

Profit prior to Incorporation

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.

Profit earned after incorporation is revenue profit, which is available for dividend. Profit of prior period and post period however divided separately because the prior period profit and loss hence always credited and charged from capital reserve A/c. Post period profit and loss thus credited and charged from Profit & Loss A/c.

Methods of computing profit and loss prior incorporation

1st Method

One is to close the old books and open new books with the assets and liabilities as the existed at the date of incorporation. In this way, automatically the result to that willhowever adjusted.

2nd Method

The second method is to split up the profit for the year of the transfer of the business to the company between “pre-Incorporation” and “Post-Incorporation” periods. This also done either on time basis or on turnover basis or by a method which combines two.

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