Common Size Income Statement - Solved Problems

Common Size Financial Statements
When the financial statement, financial data are shown in the shape of vertical percentage are known as Common Size Statements. In these statements, all figures are converted into a common unit by expressing them as percentage of a key figures in the statement.
The figures are shown as percentage of total assets, total liabilities and total sales. The analyst is able to assess the figures in relation to total values.

1. MANAGEMENT ACCOUNTING Financial Analysis and Interpretation : Common Size Financial Statement Analysis Problems 1 By: Smt.UMA MINAJIGI REUR HEAD, DEPT. OF COMMERCE & Management Smt. V G Degree College for Women, Kalaburagi

2. MANAGEMENT ACCOUNTING B.COM SIXTH SEMESTER & BBA FOURTH SEMESTER 6.3: PRINCIPLES OF MANAGEMENT ACCOUNTING

3. Unit II : Financial Statements : Nature, uses and limitations. Analysis and interpretations – meaning, procedure, objectives, and importance. Comparative statement, Common Size Statements and Trend Analysis - practical problems.

4. MANAGEMENT ACCOUNTING Financial Analysis and Interpretation : Comparative Financial Statement Analysis Common Size Income Statement Problems 1

5. Common Size Financial Statement Analysis Common Size Financial Statements When the financial statement, financial data are shown in the shape of vertical percentage are known as Common Size Statements. In these statements, all figures are converted into a common unit by expressing them as percentage of a key figures in the statement. The figures are shown as percentage of total assets, total liabilities and total sales. The analyst is able to assess the figures in relation to total values.

6. Common Size Financial Statement Analysis Common size statements may be prepared in the following way: Total assets or liabilities are taken as 100. Individual assets are expressed as percentage of total assets i.e , 100 and different liabilities are calculated in relation to total liabilities. Common Size Statements are those statements in which figures reported for the period are converted into percentage or ratios of a total item. Types of Common Size Statements Common Size Income Statement Common Size Balance Sheet.

7. Common Size Income Statement Analysis Common Size Income Statement In common Size income statement, the sales figures are taken to be 100% and all other items of cost of goods sold or cost of sales are expressed as a percentage of sales. A comparative common size income statement for two or more periods helps to ascertain the efficiency.

8. Common Size Balance Sheet Common Size Balance Sheet A common size balance sheet shows the percentage in relation to each item of assets to total assets and each item of liabilities to total liabilities and capital. A comparative common size balance sheet for different periods helps to understand the trends and reasons for changes in different items.

9. Illustration 1: From the following information given below you are required to prepare a common size Income Statement. Income Statement for 2019-2020 Particulars 31-12-2019 31-12-2020   Amount Amount Amount Amount I. Continuing operations         Revenue from operations 2,80,000 3,30,000 2. Other income - - Total Revenue 2,80,000 3,30,000   Expenses Cost of Sales 1,70,000 2,10,000 Finance Cost Other Expenses 44,000 2,14,000 54,000 2,64,000 Profit before tax 66,000 66,000   Less: Tax @40% of PBT 26,400 26,400 Profit after Tax 39,600 39,600

10. Solution: Common Size Income Statement For the year ended 31 st Dec, 2019 and 2020 Particulars 31-12-2019 (Rs.) 31-12-2020 (Rs.) Amount Percentage Amount Percentage

11. Solution: Common Size Income Statement For the year ended 31 st Dec, 2019 and 2020 Particulars 31-12-2019 (Rs.) 31-12-2020 (Rs.) Amount Percentage Amount Percentage I. Continuing operations Revenue from operations (Sales) 2,80,000 100 3,30,000 100 Total Revenue (A) 2,80,000 100 3,30,000 100   Expenses Cost of sales 1,70,000 60.72 2,10,000 63.63 Other Expenses 44,000 15.71 54,000 16.36 Total Expenses (B) 2,14,000 76.43 2,64,000 80   Profit Before Tax (A-B) 66,000 23.57 66,000 20 Less: Income Tax 26,400 9.42 26,400 8 Profit After Tax 39,600 14.14 39,600 12 Particulars 31-12-2019 31-12-2020   Amount Amount Amount Amount I. Continuing operations         Revenue from operations 2,80,000 3,30,000 2. Other income - - Total Revenue 2,80,000 3,30,000   Expenses Cost of Sales 1,70,000 2,10,000 Finance Cost Other Expenses 44,000 2,14,000 54,000 2,64,000 Profit before tax 66,000 66,000   Less: Tax @40% of PBT 26,400 26,400 Profit after Tax 39,600 39,600

12. Solution: Working Notes: Calculation of Percentage to Sales = Concerned item X 100 Sales 1. Percentage of Cost of Sales to Sales = Cost of Sales X 100 Sales 2019 = 170000 X 100 = 60.72% 280000 2020 = 210000 X 100 = 63.63% 330000 2. Percentage of Other Exp to Sales = Other Expenses X 100 Sales 2019 = 44000 X 100 = 15.71% 280000 2020 = 54000 X 100 = 16.36% 330000

13. Solution: Working Notes: Calculation of Percentage to Sales = Concerned item X 100 Sales 3. Percentage of Income Tax to Sales = Income Tax X 100 Sales 2019 = 26400 X 100 = 9.42% 280000 2020 = 26400 X 100 = 8% 330000

14. Interpretation: Percentage of profit in 2020 is decreased as compared to 2019, because of increase in Cost of sales. Increase in other expenses in 2020 as compared in 2019. Decrease in Net profit in 2020 as compared to 2019.

15. Illustration 2: The following is the profit and loss account of Hubli Ltd. For the year 2020 and its previous year. Convert the following to Common Size Income Statement. Profit & Loss A/c As on 31 st Dec, 2019 and 2020 Particulars 31-12-2019 31-12-2020   Amount Amount Amount Amount I. Continuing operations         Revenue from operations 14,19,736 16,40,694   2. Other income 22,090    12,824    Total Revenue   14,41,826   16,53,518           Expenses         Cost of Sales 9,26,500   9,67,798   Finance Cost 8,550   7,000   Other Expenses 2,89,216   3,40,238   Profit before tax   2,17,560   3,38,482           Less: Tax expenses   86,076   1,60,780 Profit after Tax   1,31,484   1,77,702

16. Notes to Accounts Particulars 31-12-2019 31-12-2020   Amount Amount Amount Amount         Revenue from operations         By, Sales 14,42,912   16,68,500   Less: Returns 23,176 14,19,736 27,806 16,40,694           2. Other income         Dividends 7,590   5,240   Purchase discount 8,500   7,584   Profit on sale of land 6,000 22,090   12,824 Cost of Sales 9,26,500   9,67,798   Finance Cost         Interest Paid 8,550   7,000   Other Expenses         Adm exp 93,062   1,08,274   Selling exp. 1,93,646   2,31,264   Loss on sale of fixed assets 2,508 12,24,266   700 13,15,036 Tax expenses   86,076   1,60,780 Profit after Tax   1,31,484   1,77,702

17. Thank You Watch next PPT & Video for Problems on Common Size Balance Sheet