CS Executive · Corporate Accounting and Financial Management · Related Aspects of Company Accounts
A company was incorporated on 1 August 2025 and took over a business with effect from 1 April 2025. The accounts are made up to 31 March 2026. Rent of Rs 1,20,000 for the whole year accrued evenly and is allocated on a time basis. How much rent is charged to the pre-incorporation period?
Rs 40,000 of rent is charged to the pre-incorporation period. The pre-incorporation period is four months (April to July) out of twelve, giving a time ratio of 1:2, so one-third of Rs 1,20,000 falls before incorporation.
- ARs 40,000Correct
- BRs 60,000
- CRs 30,000
- DRs 80,000
Explanation
The pre-incorporation period is April to July, which is 4 months. The post-incorporation period is 8 months, so the time ratio is 4:8 = 1:2. Pre-incorporation rent = 1,20,000 x 4/12 = Rs 40,000. Rs 80,000 is the post-incorporation share.
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