03 January 2014
Profit prior to incorporation is that profit which a company gets between the period of date of buying and date of incorporation.
Suppose, A company buys XYZ company on 1st Jan. 2010 and it has to incorporate at 1st April 2010. Then profit between 1st Jan. 2010 and 1st April 2010 will be profit prior to incorporation.
This profit can not be used for paying dividend to shareholders. Because current shareholder’s capital is not involved for this profit, so this will be capitalized profit and it will be transferred to capital reserve account.
If company gets loss prior to incorporation, it will be transferred to goodwill account.
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