Hi all,
pls throw some light on post profit that arises in profit prior incorporation. what would be the entry in this case
P/L Dr
to p/l appropriation
is that right??
pls advise
Rahul
(MT)
(102 Points)
Replied 12 May 2020
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 12 May 2020
Hi Rahul,
sorry for the confusion, I think it is
By pre incorporation Profit a/c
To Capital Reserves a/c
because reserves account is credited.
Rahul
(MT)
(102 Points)
Replied 23 May 2020
yasaswi gomes
(My grammar is 💯 good I)
(7290 Points)
Replied 24 May 2020
Profit from before incorporation: see the attachment. It is transferred to reserves first and after post acquisition, the net profit is transferred to appropriation account to distribute profits.
Steps are simple:
Write it off against existing goodwill if any and take the balance pre incorporation Profit to capital reserves. From here, at the year end, after preparing the income statement of new company, a Profit and Loss appropriation account is created where pre incorporation+post incorporation reserves are debited; profit is credited to find out the balance left after paying/ distributing profits to shareholders and partners.
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