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Profits or loss pre and post incorporation

Suresh Pai S (Tax Consultant) (1029 Points)

29 March 2017

Preincorporation profit is of a capital nature.Why?

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5 Replies

Diamond Goyal (Finance Accounts Taxation & Auditing) (90 Points)
Replied 30 March 2017

Because at the time of pre-incorporation there was no existance of business & hence the amount and nature of expenditure incurred will be capitalized.

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Suresh Pai S (Tax Consultant) (1029 Points)
Replied 30 March 2017

By business did you mean the existence of a legal entity or operations?

Diamond Goyal (Finance Accounts Taxation & Auditing) (90 Points)
Replied 30 March 2017

Business means activities after incorparation of entity. i.e. activities after certificate of incoporation, commencement of business for sale or purchase etc.

Suresh Pai S (Tax Consultant) (1029 Points)
Replied 30 March 2017

Actually I am asking about distribution of profit or loss when a running business is acquired by a company. In that case, there is a gap between the date of acquisition and date of incorporation. There is sales and purchase even before incorporation also. So there is profit.