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Common-Size & Comparative Income Statements + Balance

Sheet
Accounting (Savitribai Phule Pune University)

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Preparation of Common Size and

Comparative Income Statement
and Balance Sheet of a company
by taking into account its audited,
unaudited / imaginary financial
results of two consecutive quarters
of an accounting year or of two
consecutive accounting years.

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CERTIFICATE

This to certify that _____________________ of

Class XII, has successfully completed the
project on the topic Preparation of Common
Size and Comparative Income Statement and
Balance Sheet of a company under the guidance
of _____________during the academic session
____________as per guidelines.

Place: _______________
Date: ________________

Subject Teacher Principal External Examiner

_________________ ___________________ ________________
Name Name Name

_________________ __________________ _________________

Signature Signature Signature

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Index

SR. NO. CONTENTS PG.NO. SIGN

01 Certificate 02
02 Acknowledgement 04
03 Introduction 05
04 Examples 16
05 Bibliography 25

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Acknowledgement

I would like to thank my Accounts teacher,

for giving me this interesting project and
for all her help and guidance in making this
project. I would further give my thanks to
the Principal. I would also like to thank my
parents for their continuous support and
inputs in the same.

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Introduction

Comparative Statements

Comparative Statements or Comparative Financial

Statements mean comparative study of items or
components of financial statements (Balance Sheet and
Statement of Profit and Loss) for two or more years or
with that of other enterprises. Comparative Statement is
a tool of financial analysis that shows change in each item
or component of a financial statement in absolute
amount and in percentage, taking the amounts for the
previous accounting period as the base.

Comparative Statement when prepared from the

enterprise’s financial statements of two or more years, is
known as Intra-firm Comparison.

Comparative Statement when prepared for comparing

the enterprise’s financial statements with that of another
enterprise, is known as Inter-firm Comparison.

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Objectives of Comparative Statements

● Data Presentation becomes Simple and Comparable

Comparative Statement is a statement having data for
two or more years in a tabular form, making it simple and
comparable.
● Indicates Trend
It gives information about the changes affecting the
financial position and performance of the enterprise.
● Indicates Strength and Weaknesses
It indicates the strengths and weaknesses of the
enterprise with respect to liquidity, profitability and
solvency.
● Comparison with other Firms and Industry Performance
(Inter-firm Comparison)
It helps in comparison of the enterprise’s performance
with that of other enterprises or industry.
● Forecasting and Planning
Analysing the changes on financial data of the previous
years helps the management in forecasting and planning.
● Key Financial Statements
It is a guide to understand the movements of key
financial statistics.

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Limitations

● Historical Records
Since it is an analysis of past financial statements, they
only indicate the trend of happenings in the past and do
not reflect on the future.
● Affected by Personal Judgement
Financial statements are prepared on the basis of
accounting concepts and conventions along with
estimates. If the estimates are incorrect, the projections
will not be reliable.
● Ignores Qualitative Factors
They are prepared from the monetary information,
ignoring qualitative factors like manpower which have a
significant impact on the business.
● Ignores Price Level Changes
At the time of preparing Comparative Statements, the
value of money may not be the same as it was when the
events were recorded, making the comparison
meaningless.
● Variation in Accounting Policies
When two firms follow different accounting policies,
then meaningful comparison of their financial statements
is not possible.

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Tools for Comparison of Financial Statements

● Comparative Balance Sheet

● Comparative Income Statement or Comparative
Statement of Profit and Loss
● Common-size Balance Sheet
● Common-size Income Statement or Common-size
Statement of Profit and Loss

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Comparative Balance Sheet

“Comparative Balance Sheet analysis is the study of the

trend of the same items and computed items in two or
more balance sheets of the same business enterprise on
different dates.”
-Foulka
Comparative Balance Sheet is the horizontal analysis of
Balance Sheet in which each item of assets, equity and
liabilities is analysed horizontally (i.e., showing increase
and decrease in each item) for two or more accounting
periods. It analyses each item of Assets, Equity and
Liabilities in absolute amount as well as in percentage by
taking the amount of the previous year as base.

Preparation of Comparative Balance Sheet

Comparative Balance Sheet has six columns:

● The First Column has the items or components of
the Balance Sheet.
● The Second Column has the Note Number against
the item in the Balance Sheet.
● The Third Column has data (amounts) of the current
year’s Balance Sheet.
● The Fourth Column has data (amounts) of the
previous year’s balance sheet.

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● The Fifth Column has differences (increase or

decrease) in amounts between the current year and
previous year.
● The Sixth Column has the above differences
expressed as a percentage, taking previous year’s
amount as the base. Percentage is calculated with
the help of the formula:
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒
𝐴𝑏𝑠𝑜𝑙𝑢𝑡𝑒 𝐶ℎ𝑎𝑛𝑔𝑒
= × 100
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑡ℎ𝑒 𝑝𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑦𝑒𝑎𝑟
=. . . %.

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Comparative Income Statement 0r

Comparative Statement of Profit & Loss

“Statement of Profit and Loss or Income Statement

shows the financial performance, i.e., net profit earned
or net loss incurred by the company during the year.
Comparative statement of Profit and Loss is the
horizontal analysis of Statement of Profit and Loss which
shows
i. The operating results for the compared accounting
periods,
ii. Changes in data in terms of absolute amount, and
iii. Percentage from one period to another.
Comparative income statement shows the:
● Revenues and Expenses in absolute values
● Increase or decrease of revenues and expenses in
absolute values
● Percentage changes in revenues and expenses.

Preparation of Comparative Income Statement 0r

Comparative Statement of Profit & Loss

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Comparative Income Statement, like Comparative

Balance Sheet, is prepared having six columns:
● In the 1st column, the items of Statement of Profit
and Loss, like Revenues and Expenses, are written.
● In the 2nd column, Note Number given against the
item in the Statement of Profit and Loss is written.
● In the 3rd column, the amounts of items for the
current year are written.
● In the 4th column, the amounts of items for the
previous year are written.
● In the 5th column, differences, (increase or decrease)
in amounts between the current year and previous
year are written.
● In the 6th column, the above differences expressed
as a percentage are shown.
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒
𝐴𝑏𝑠𝑜𝑙𝑢𝑡𝑒 𝐶ℎ𝑎𝑛𝑔𝑒
= × 100
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑡ℎ𝑒 𝑝𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑦𝑒𝑎𝑟
=. . . %.

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Common-size Statements

Common-size Financial Statements are the statements in

which amounts of individual items of Balance Sheet and
Income Statement for two or more years are written.
These amounts are further converted into percentages
to a common base. In the words of Kohler, “Common-
size statements are accounting statements expressed in
percentage of some base other than rupees.” Common-
size statements are prepared for Balance Sheets as well
as Income Statements. This analysis is also known as
vertical analysis. These statements show:
● Each item of Financial Statements in absolute value.
● Each item of Financial Statements as percentage of
a common base such as Revenue from Operations
for Statement of Profit or Loss and Total Assets for
Balance Sheet, which is taken as 100.

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Objectives of preparing Common-size

Statements

● To analyse the change in each item of the statement

as a percentage to a common base.
● To determine the trend of different items of the
statement.
● To assess the efficiency.
Common-size Balance Sheet

Common-size Balance Sheet is the vertical analysis of

Balance Sheet in which Total Assets is taken as 100 and
each item of Asset is expressed as percentage of total
amount of Equity and Liabilities. This statement shows:
● Assets, Equity and Liabilities in absolute values
● Assets, Equity and Liabilities as percentage of Total
Assets.

Preparation of Common-size Balance Sheet

Common-size Balance Sheet is prepared having six

columns as follows:
● The First Column has items of the Balance Sheet.
● The Second Column has the Note Number against
the item in the Balance Sheet.

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● The Third Column has absolute amounts of different

items of the current year.
● The Fourth Column has absolute amounts of
different items of the previous year.
● The Fifth Column has the percentage of each item
of assets and liabilities of current year to total assets
and liabilities of current year (taken as 100).
● The Sixth Column has the percentage of each item
of assets and liabilities of previous year to total
assets and liabilities of previous year.
Common-size Income Statement 0r
Common-size Statement of Profit & Loss

Common-size Income Statement is the vertical analysis

of Income Statement in which the value of Revenue from
Operations is taken as 100 and values of other items of
Income Statement are expressed as percentage of
Revenue from Operations. It shows:
● Revenues and Expenses in absolute values
● Revenues and Expenses as percentage of Revenue
from Operations; for different periods of the same
or two firms.
Preparation of Common-size Income Statement
Common-size Income Statement has six columns:
● The First Column has items of Income Statement.

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● The Second Column has a Note Number against the

item in the Statement of Profit or Loss.
● The Third Column has amounts of different items of
current year.
● The Fourth Column has amounts of different items
of previous year.
● The Fifth Column has a percentage of different
items of Income Statement to Revenue from
Operations of current year .
● The Sixth Column has percentage of different items
of Income Statement to Revenue from Operations
of previous year.

Examples

➔ Comparative & Common-size Balance

Sheet

From the following Balance Sheet, prepare Comparative

& Common-size Balance Sheet of Sun Ltd.:

Particulars Note 31st 31st

No. March, March,
2021 (₹) 2020 (₹)

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I.EQUITY AND
LIABILITIES
1. Shareholder's Funds
(a) Share Capital 3,50,000 3,00,000
2. Non-Current Liabilities
Long-term Borrowings 1,00,000 2,00,000
3. Current Liabilities :
Trade Payables 1,50,000 1,00,000
Total 6,00,000 6,00,000
II. ASSETS

1. Non-Current Assets
Fixed Assets (Tangible) 4,00,000 3,00,000
2. Current Assets
Trade Receivables 2,00,000 3,00,000

Total 6,00,000 6,00,000

Solution:

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● Comparative Balance Sheet-

In the books of Sun Ltd.

Comparative Balance Sheet
as at March 31, 2021 and 2020
Particulars Note 2021 2020 Absolute Percenta
no. (₹) (₹) Change ge
(₹) Change
(%)
I. Equity and
Liabilities
1.
Shareholders’
Funds
a. Share 3,50,000 3,00,00 50,000 16.67
Capital 0
2. Non-
Current
Liabilities
a. Long-term 1,00,000 2,00,00 1,00,000 50.00
Borrowings 0
3. Current
Liabilities

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a. Trade 1,50,000 1,00,00 50,000 50.00

Payables 0
Total 6,00,000 6,00,00 1,50,000 25.00
0

II. Assets
1. Non-
Current
Assets
a. Fixed 4,00,000 3,00,00 1,00,000 33.33
Assets 0
(Tangible)
2. Current
Assets
a. Trade 2,00,000 3,00,00 1,00,000 33.33
Receivables 0
Total 6,00,000 6,00,00 2,00,000 36.67
0

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● Common-size Balance Sheet-

Particulars Note Absolute % of Balance Sheet

No. Amounts Total
2021 2020 2021 2020

₹ ₹ % %

I.EQUITY AND
LIABILITIES
1. Shareholder's
Funds
Share Capital 3,50,000 3,00,00 58.33 50.00
2. Non-Current
Liabilities
Long-term 1,00,000 2,00,000 16.67 33.33
Borrowings
3. Current
Liabilities :
Trade Payables 1,50,000 1,00,000 25.00 16.67

Total 6,00,000 6,00,000 100.00 100.00

II. ASSETS

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1. Non-Current
Assets
Fixed Assets 4,00,000 3,00,000 66.67 50.00
(Tangible)
2. Current
Assets
Trade 2,00,000 3,00,000 33.33 50.00
Receivables
Total 6,00,000 6,00,000 100.00 100.00

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➔ Comparative & Common-size Income

Statement

Prepare Comparative & Common-size Statement of

Profit and Loss from the following Statement of Profit
and Loss:

Particulars Note 31st 31st

No. March, March,
2021 2020
(₹) (₹)
I. Income
Revenue from Operations 3,50,000 3,00,000
(Net Sales)
II. Expenses
Purchases of Stock-in-Trade 2,10,000 1,80,000
Change in Inventories of 15,000 20,000
Stock-in-Trade
Employees Benefits 17,500 15,000
Expenses

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Other Expenses 7,500 5,000

Total 2,50,000 2,20,000

III. Profit before Tax (I-II) 1,00,000 80,000

IV. Less: Tax 30,000 24,000

V. Profit after Tax (III-IV) 70,000 56,000

Solution:
● Comparative Income Statement-

Comparative Income Statement

for the year ended March 31, 2021 and 2020

Particulars Note 2021 2020 Absolute Percentage

no. (₹) (₹) Change Change
(₹) (%)

I. Revenue 3,50,00 3,00,000 50,000 16.67

from 0
Operations

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II.
Expenses
a. Purchase 2,10,00 1,80,000 30,000 16.67
of Stock- 0
in- Trade
b. Changes 15,000 20,000 (5,000) (25.00)
in
Inventories
of Stock-
in- Trade
c. 17,500 15,000 2,500 16.67
Employees
Benefit
cost
d. Other 7,500 5,000 2,500 50.00
Expenses
Total 2,50,00 2,20,000 30,000 13.67
Expenses 0
III. Profit 1,00,00 80,000 20,000 25.00
before 0
Income
Tax (I-II)

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● Common-size Income Statement-

Particulars Note 31st 31st % of Revenue

No. March, March, from Operations
2021 2020 2021 2020

₹ ₹ % %

I. Revenue 3,50,000 3,00,000 100.00 100.00

from
Operations
Total Revenue 3,50,000 3,00,000 100.00 100.00

II. Expenses

a. Purchase of 2,10,000 1,80,000 60.00 60.00

Stock-in- Trade
b. Changes in 15,000 20,000 4.39 6.67
Inventories of
Stock-in- Trade
c. Employees 17,500 15,000 5.00 5.00
Benefit cost
d. Other 7,500 5,000 2.14 1.67
Expenses

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Total Expenses 2,50,000 2,20,000 71.43 73.34

III. Profit 1,00,000 80,000 28.57 26.66

before Income
Tax (I-II)

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Bibliography

● Name of the book: T. S. Grewal’s Management

Accounting (Section B)
Authors: T. S. Grewal, H. S. Grewal
Name of Publisher: Sultan Chand & Sons (P) Ltd.
Year of Publishing: 2005
Edition: 2021

● https://www.meritnation.com/cbse-class-12-
commerce/accountancy/analysis-of-financial-
statements-ts-grewal-2019/tools-of-financial-
statement-analysis-comparative-statements-and-
common-size-statements

● https://www.shaalaa.com/textbook-solutions/c/ts-
grewal-solutions-class-12-accountancy-analysis-of-
financial-statements-chapter-2-tools-financial-
statement-analysis-comparative-statements-
common-size-statements_1668

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