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HELP NEEDED IN ACCOUNTS

Simranjeet Singh (Proprietor at S Simranjeet & Associates Company Secretaries) (4396 Points)

31 March 2010

This is a question from acquisition of business. pls answer this...

Q. zed ltd was formed on 1 may,2007 and it obtained the certificate to commence business on 1st june,2007. it acquired a running business with effect from 1st jan,2007. books closed on 30 sep,2007 when it was found that the net profit was Rs. 200,000 with a gross profit of Rs. 450,000 . director fees was Rs. 34,000. sales in the month of january to june per month were 1/2 of the sales per month in remaining months. what profit is available to company for declaration of dividend?

ANS. Rs. 96,000 (Time Basis)

pls show working also if possible.....

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27 Replies

CA. Megha Topiwala (Job) (1534 Points)
Replied 31 March 2010

even i m not able 2 solve...

1 Like

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Anand (FINAL CA) (1116 Points)
Replied 31 March 2010

yup dude me 2 not getin it....

1 Like

(Guest)

Dear Simranjeet,

Kindly check the question which you have posted here from the source of that question.... I am getting INR 91000/=...

2 Like

Simranjeet Singh (Proprietor at S Simranjeet & Associates Company Secretaries) (4396 Points)
Replied 31 March 2010

Thanks to everyone who atleast try to work it out. Faiz bhaizaan the question which i had posted is absolutely correct as this question is from ICSI study material practice questions. but i think there is some problem in question or the answer mentioned there. by the way how u work out this INR 91000.

(Guest)

Dear simranjeet,

The answer of mine given in previous reply is wrong but as of now solution is ready.... Its purely the brain work of my friend.. My friend was only able to solve this correctly...

Solution goes like this---

see first calculate N/p b4 directors fee which will be INR 234000/= this profit you divide between pre and post incorporation period in time ratio of 4:5. .Then post incorporation profit will be INR 130000/=

This profit of 130000 is deducted by a post incorp. exp of INR34000( director fee). the result will be INR 96000/== which is the profit of the co, available for dividend......

Hope u hv understood....

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VUELVE (CA- Student) (351 Points)
Replied 31 March 2010

Great you tried for it and got it solved ...!!

2 Like

Rahul Bansal (Finalist) (35929 Points)
Replied 01 April 2010

I WILL TRY TO SOLVE IT AND AS SOON AS POSSIBLE..SEND U A MESSAGE TOO......

1 Like

Kaushik Vankadkar (Service) (350 Points)
Replied 01 April 2010

Pre and Post acquisition time ratio: Jan to April = 4months and May to Sep = 5months therefore ratio = 4:5. Now, Net profit after director's fees = Rs.200000 Add: Director's fees = Rs. 34000 (As it is purely post acquistion) Net profit = Rs.234000 Divide the net profit of Rs. 234000 in the time ratio = 4:5 Therfore, Pre profits = Rs.234000/9*4 = 104000 Post profits = Rs.234000/9*5 = 130000 Post profit before director rem = 130000 Less: director remuneration = 34000 NET PROFIT C/F TO P/L = 96000 and Rs.104000/- carried to capital reserves.

3 Like

R Nelson Ram (job seeker) (46 Points)
Replied 01 April 2010

i dont agree with the above solutions .... the sale has not been uniform throughout the nine months ... so profit will not be uniform for the 9 months .... the sale p.m for the first 6 months is half of the sale p.m of the remaining 3 months ...profit is higher in the last 4 months... g.p will be distributed on the basis of ratio of sales . moreover it is compulsory for public limited company to obtain certificate of commencement ...

so the post incorporation period will be for 4 months.....

ratio of sales of pre:post will be 1/2*5:1/2+(1*3)

i.e 5:7

gp for post incorporation period will be 450000*7/12=262500

post incorporp. profit = 262500 - 34000 - {(216000/9)*4} = 142500 ....

2 Like

CA. Abhishek K. Pandey (Manager (Advance)) (901 Points)
Replied 01 April 2010

Yes. I am also not satisfied with the above solutions. See, "sales in the month of january to june per month were 1/2 of the sales per month in remaining months. "

That means G.P. should be allocated as 5:7.

i.e. Post incorporation gross profit = 450000*7/12 = 262500.00

Expenses (250000-34000=216000) = 216000*4/9 = 96000.00

Director's fees = 34000.00

Balance = 132500.00

Thats my answer !

Hope simranjeet is noy trying to make April fool !!

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CA. Abhishek K. Pandey (Manager (Advance)) (901 Points)
Replied 01 April 2010

Originally posted by : R Nelson Ram
	i dont agree with the above solutions .... the sale has not been uniform throughout the nine months ... so profit will not be uniform for the 9 months .... the sale p.m for the first 6 months is half of the sale p.m of the remaining 3 months ...profit is higher in the last 4 months... g.p will be distributed on the basis of ratio of sales . moreover it is compulsory for public limited company to obtain certificate of commencement ... so the post incorporation period will be for 4 months..... ratio of sales of pre:post will be 1/25:1/2+(13) i.e 5:7 gp for post incorporation period will be 4500007/12=262500 post incorporp. profit = 262500 - 34000 - {(216000/9)4} = 142500 ....

Can you explain, how you had deduct only 34000.00 from G.P. and not other expenses.

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Simranjeet Singh (Proprietor at S Simranjeet & Associates Company Secretaries) (4396 Points)
Replied 01 April 2010

Originally posted by : Abhishek
	Yes. I am also not satisfied with the above solutions. See, "sales in the month of january to june per month were 1/2 of the sales per month in remaining months. " That means G.P. should be allocated as 5:7. i.e. Post incorporation gross profit = 4500007/12 = 262500.00 Expenses (250000-34000=216000) = 2160004/9 = 96000.00 Director's fees = 34000.00 Balance = 132500.00 Thats my answer ! Hope simranjeet is noy trying to make April fool !!

No no brother i am not trying to make april foo outl of everyone Rs.96000 is the correct one given in module practice questions.

Simranjeet Singh (Proprietor at S Simranjeet & Associates Company Secretaries) (4396 Points)
Replied 01 April 2010

Thanks to Faiz bhaizaan, kaushik and everyone who spend their valueable time in solving my doubts and queries.

(Guest)

Originally posted by : R Nelson Ram
	i dont agree with the above solutions .... the sale has not been uniform throughout the nine months ... so profit will not be uniform for the 9 months .... the sale p.m for the first 6 months is half of the sale p.m of the remaining 3 months ...profit is higher in the last 4 months... g.p will be distributed on the basis of ratio of sales . moreover it is compulsory for public limited company to obtain certificate of commencement ... so the post incorporation period will be for 4 months..... ratio of sales of pre:post will be 1/25:1/2+(13) i.e 5:7 gp for post incorporation period will be 4500007/12=262500 post incorporp. profit = 262500 - 34000 - {(216000/9)4} = 142500 ....

First regarding ur certificate of commence. business doubt.... A co. comes into existence on the date of incorporation and not on the date certificate of commencing business is recd. In this case after incorporation exp. like director fees is incurred which is possible that it might hv been charged b4 CCBusines is recd.... as director can be appointed after incorporation...

Coming to ur second point of uniformity in sales ... I totally agree with u that sales are not uniform but do u think that N/P is the result of merely Sales aspect??????? Many other incomes and expenses are taken to arrive at the figure of N/p...... Moreover the business acquired is a running business.....

Thanks to all of u for taking initiative to try this problem..... All the best .......