C16 unless, in the light of available information time at which these were incurred or in consideration of the relationship that these bear to the profit of the two periods. For example, interest payable on the credit balance of vendors is charged against the profit of the period before the business was taken over on the consideration that it is in respect of that period before the business was taken over on the consideration that it is in respect of that period that the profit accrued to the company, though the purchase consideration had not been discharged. But if the purchase consideration is not paid on taking over the business, the interest for the subsequent period is charged to the post- incorporation period. Again, preliminary expenses on the formation of the company though incurred in point of time, before the company was incorporated are charged against the profit of the period subsequent to incorporation. Rs. Suppose Sales in Pre-incorporation Period 6,000 Sales in Post-incorporation Period 19.000 25.000 The company deals in one type of product. The unit cost of sales was reduced by 10% in post incorporation period as compared to the pre-incorporation period in the year. In this case the cost of sales will be divided between the two periods in the ratio of 6,000: 17,100 i.e., 19,000-1,900. Illustration 1 Bidyut Limited was incorporated on 1st July, 2005 to acquire from Bijli as and from 1st January, the individual business carried on by him. The purchase price of the fixed assets and goodwill was agreed to be the sum equal to 80% of the profits made each year on ascertainment of the sum due. The following Trial Balance as on 31st Dec., 2005 is presented to you to enable you to prepare a Balance Sheet as at that date. Also prepare statement of appropriation of profit writing off one- third of the preliminary expenses. Dr. Cr. Rs. Rs. 1,20,000 Share Capital - 1,500 equity shares of Rs. 100 each, Rs. 80 paid up Sundry Debtors Stock on 31st Dec., 2005 Cash at bank and on hand Directors' fee Preliminary expenses Sundry Creditors Net Profit for the year after providing for all expenses under agreement entered into with Bijli 82,000 67,000 24,000 3,000 24,000 32,000 2.000 48,000 2,00,000 2,00,000