Items That Belong Wholly to One Period
Chapter Thirty-Two
Syllabus topic 2, "Basis of Apportionment between Pre and Post Incorporation Period"
Pages 96 to 98 of 168
In one line
Some costs could only have arisen after the company existed, and some only before it took over, so they go whole into one column.
The post-incorporation items, and why
| Item | Why it can only be post |
|---|---|
| Directors' fees and remuneration | A director is an officer of a company; before incorporation there was no company and so no board |
| Managing director's remuneration | The same |
| Preliminary expenses written off | These are the costs of bringing the company into existence, so they cannot precede it |
| Formation and registration expenses | The same |
| Debenture interest | The debentures were issued by the company |
| Interest on share capital | There were no shares before incorporation |
| Audit fees for the statutory audit | The statutory audit is a company obligation under the Companies Act |
| Depreciation on an asset bought after incorporation | The asset was not held before |
The pattern is worth naming. Each of these arises out of being a company or out of something the company did. Ask "could a partnership have incurred this?" If not, it is post-incorporation.
The pre-incorporation items, and why
| Item | Why it can only be pre |
|---|---|
| Partners' salaries | The partnership arrangement ended when the business was sold |
| Interest on partners' capital | The same |
| Any expense the vendor bore personally under the agreement | The agreement says so |
These are fewer, because the business itself continued across the incorporation date and most of its costs continued with it. Only the arrangements peculiar to the partnership stop.
The statutory audit fee, and the trap in it
Audit fees appear in two guises and students treat them alike.
A statutory audit fee is a company obligation and belongs wholly to the post period.
An audit fee covering the whole accounting period, where the question presents it as an ordinary running cost, is apportioned on time.
The question decides. Where it says "audit fees" without more, apportion on time and say so; where it says "statutory audit fees of the company", it is post. A one-line reason protects the mark either way.
Interest to the vendor: the one that straddles
Where the purchase consideration is not paid at once, the company usually pays the vendor interest on the outstanding amount from the acquisition date until it is discharged.
That period begins before incorporation and ends after it. So the interest is neither wholly pre nor wholly post, and it is not apportioned on the general time ratio either.
It is split on the months it actually covers.
Worked
A business was acquired with effect from 1 April 2026. The company was incorporated on 1 August 2026 and discharged the consideration of Rs 5,00,000 on 30 November 2026, having agreed to pay interest at 12 per cent per annum from the date of acquisition.
The rest of this chapter
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The rest of this subject
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