Prejith (Pursuing CA) (92 Points)
07 December 2010
In case of Profits prior to incorporation, we differentiate between the transactions relating to pre and post incorporation. My doubt is that:
1. Are the transactions relating to pre incorporation period the outcomes of preliminary contracts ?
2. If yes to the above, then will the ratification of such preliminary contracts by the company affect the treatment of profit or loss that is usually followed during the pre-incorporation period ?
Regards
Vedant Agarwal
(Chartered Accountant)
(46 Points)
Replied 07 December 2010
Yes, the transactions relating to pre incorporation period are the outcomes of preliminary contracts entered into by the promoters of the company.
Even, if the promoters earn any undisclosed income from the contracts entered into during the pre-incorporation period, the director has to give such income to the company.
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