Common Size Statement.pptx

Common size Balance sheet

1. Common Size Statement Presented BY Vikash barnwal Assistant professor Faculty of business management Kashi Institute of TECHNOLOGY, VARANASI

2. Introduction A Vertical Analysis of Financial Statements of a company, in which the amount of individual items of a Balance Sheet of Statement of Profit & Loss are written, is known as a  Common Size Financial Statement.  The amounts written are then converted into percentage by taking a common base; which is, Revenue from Operations or Net Sales in case of Statement of Profit & Loss and Total Assets or Total Equity and Liabilities in case of a Balance Sheet. The percentages calculated by taking the respective common bases are then compared with the corresponding percentages of other periods, through which meaningful conclusions can be drawn. A Common-size Statement can be prepared for inter-firm and intra-firm comparisons or a Balance Sheet and Income Statement. 

3. Common-size Statements are accounting statements expressed in percentage of some base rather than rupees . – Kohler A statement that shows the percentage relation of each asset/liability to the total assets/total of equity and liabilities, is known as a  Common-size Balance Sheet. 

4. Objectives of Common Size Balance Sheet Different objectives of a Common-size Balance Sheet are as follows: 1. The basic objective of a Common-size Balance Sheet is to analyse the changes in the individual items of a Balance Sheet. 2. It is also prepared to see the trends of different items of assets, equity and liabilities of a Balance Sheet.  3. Lastly, it is prepared for the assessment of the financial soundness of the organisation and to understand its financial strategy.

5. Preparation of Common Size Balance Sheet A Common-size Balance Sheet has the following six columns: 1. First Column:  In the first column, the items of the Balance Sheet are written. 2. Second Column:  In the second column, Note No. given against the line item is written. 3. Third Column:  In the third column, the amounts of different items; i.e., assets, equity, and liabilities of the previous year are written. 4. Fourth Column:  In the fourth column, the amounts of different items; i.e., assets, equity, and liabilities of the current year are written. 5. Fifth Column:  In the fifth column, the percentage relation of the different items of the previous year’s Balance Sheet to the Total of Equity and Liabilities/Total Assets are written. Here, the Total of Equity and Liabilities/Total Assets are taken as 100.  6. Sixth Column:  In the last column, the percentage relation of the different items of the current year’s Balance Sheet to the Total of Equity and Liabilities/Total Assets are written. Here, the Total of Equity and Liabilities/Total Assets are taken as 100.

6. From the following Balance Sheet of Shreya Ltd. as at 31 st  March 2020, prepare a Common-size Balance Sheet: