CA Foundation · Accounting · Company Accounts
Verma Ltd. took over a business from 1 April and was incorporated on 1 July. Sales for the year ended 31 March were ₹16,00,000, of which the first three months' sales (April-June) were ₹2,00,000 and the rest were spread evenly over the remaining nine months. Gross profit was ₹4,00,000 for the year. Gross profit is allocated in the sales ratio. What is the gross profit for the pre-incorporation period?
The pre-incorporation gross profit is ₹50,000. Gross profit is divided in the sales ratio, not the time ratio. Pre-incorporation sales are ₹2,00,000 and post-incorporation sales are ₹14,00,000, giving 1 : 7, so one-eighth of ₹4,00,000 is ₹50,000.
- A₹50,000Correct
- B₹1,00,000
- C₹87,500
- D₹25,000
Explanation
Sales ratio pre : post = 2,00,000 : 14,00,000 = 1 : 7. Gross profit pre = 4,00,000 × 1/8 = ₹50,000. Using time ratio 3:9 would give ₹1,00,000, which is wrong because gross profit follows sales ratio.
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