Weighted Ratio Profit Prior to Incorporation

11/07/2020 1 By indiafreenotes

Sometimes the total payments made on account of various time expenses viz., salary, wages, etc. vary throughout the year, i.e., does not remain static or constant. Needless to mention that if the expenses remain constant, the same can be divided by the time ratio.

Problem arises particularly when the numbers of employees change with the conversion of the firm into a limited company. Thus, ratio in this case should be considered after taking into consideration the time and the number of employees in pre- and post- incorporation periods.

The following illustration will make the above principle clear:


From the following particulars, calculate the Weighted Time Ratio for pre- and post-incorporation periods and divide the total wages accordingly:

(i) Date of incorporation: 1st April 2008

(ii) Period of Financial Accounts: Jan. to Dec. 2008.

(iii) Total payment made on account of wages: Rs. 16,000

(iv) No. of workers: Pre-incorporation period: 4 and Post-incorporation period: 20.


Ordinary Time Ratio 3 Months 9 Months
  Or                                          1: 3
Weighted Time Ratio 1*4 3*20
= 4 60
Pre-incorporation wages Rs. 16,000 * (1/16) = 1,000
Post-incorporation wages Rs. 16,000 * (15/16) = 15,000