CBSE Quick Revision Notes and Chapter Summary

Class-12 Accountancy
Part – B – Financial Statement Analysis

Introduction
Financial Statements are helpful to know the financial position of the business. A financial
statement is an organized collection of data according to logical and consistent accounting
procedure. Financial statements, essentially, are interim reports, presented annually and
reflect a division of the life of an enterprise into more or less arbitrary accounting period –
frequently a year.

MEANING OF FINANCIAL STATEMENTS

Financial statements are mainly prepared for decision making purposes. Financial Statements
are the end product of financial accounting. Financial Statements are prepared to know the
profitability and financial position of the business. Financial Statements provide detailed
information and are thus a form of analysis. Financial Statements are also known as Financial
Reports.

Some Important definitions of Financial Statements:

1. In the words of John N. Myer, “ The Financial Statements provide a Summary of the
accounts of a business enterprise,”

2. “ Financial Statements are prepared for the purpose of presenting a periodical review or
report on progress made by the management and deal with the status of investment in
the business and the results achieved during the period under review.”
----- American Institute of Certified Public Accountant (AICPA)
3. “At every annual general meeting of the company, the Board of directors shall lay before
the company (a) Balance Sheet as at the end of the period (b) Statement ofvProfit and
Loss for period; in case of a company not carrying on business for profit, an Income and
expenditure account shall be laid before the company at its Annual General Meeting
instead of Profit and Loss Account.”
----- Under Section – 211 of Indian Companies Act 1956

OBJECTIVES OF FINANCIAL STATEMENTS

1. To provide the True and fair picture of the business.

2. To provide the financial information of the business.
3. To provide useful information’s for making economic decisions.
 4. To provide useful information to investors and creditors.
5. To provide the useful information’s to the users for predicting, comparing, and evaluating
enterprise earning power.

Balance sheet

Balance sheet is a statement of assets and liabilities and a part of financial statements, which
is prepared to find out the financial position of his business as on a particular date. This
statement is prepared from the trial balance after the trading and Statement of profit and loss
are prepared. All the nominal account get closed through the trading and Statement of profit
and loss, but this statement (balance sheet) contains the balances of only those ledgers
which remain open and carried forward, whether they are personal accounts or real
accounts. These accounts which are carried forward to the next year are either assets or
liabilities. On the right hand side of statement are shown assets (which will be given on the
debit side of trial balance) and on the left hand side liabilities (which have credit balance)
The profit as ascertained from the Statement of profit and loss is added to the capital account
on the liability side and if there is net loss from profit and loss account this will be deducted
from the capital account.
“ Balance sheet is a list of assets and liabilities accounts. This list depicts the position of assets
and liabilities of a specific business at a specific point of time.”
---- American Institute of Certified Public Accountants (AICPA)

Users of Financial Statements

Internal Users

(1) Proprietors: The proprietors or owners of the business need to know the Profit or Loss
of the business and Financial Position of the business. Because the Capital is contributed
by the owners and they take risk of this capital. Financial Statements helps the owners to
estimate the trading results of the business, its financial position towards the end of the
accounting period and future prospects of the business.
(2) Management : Management requires Financial Statements for planning and controlling
purposes. By proper use of the Financial Statements, management can help to improve
efficiency and thereby increase profits of the enterprise.
(3) Employees : Accounting information provided by the Financial Statements help to
maintain cordial relations between employees and employers. Moreover good results of
the business activities as revealed by financial records provide a great satisfaction to
employees as their bread and butter depends on these results. In those business concerns
in which profit sharing schemes are introduced, employees become very much interested
in knowing how the profit has been ascertained.
External Users

(1) Creditors: The persons to whom business owes money are the creditors of the business.
Since they have advanced some money or money’s worth to the business, their fate is
tagged to the prosperity or the concern. Sound financial position of the business will win
their faith for further credit and this they can know from accounting information.
(2) Potential investors : It is only after getting a detailed information about the profitability
of the concern that investors take decisions regarding investment to be made in that
particular business. Accounting information is of great use to them in this connection.
(3) Consumers : Since price of a product is fixed after considering cost of production plus
some reasonable margin of profit. Consumers are always interested in accounting
information to have an idea of the price of a product and the profit margin. If exorbitant
prices are charged to increase profit margin, consumer may compel that business to
reduce its profit margin.
(4) Government : Financial Statements are required by the government for fixing sales tax,
assessing the profitability of the concern computing national income and determining the
growth rate of industry.
(5) Researchers : Financial Statements of various enterprises is of great use to research
scholars to complete their research work.
(6) Competitors : Those persons who want to compete with a particular business are
interested to know its profitability. This is made available from accounting records of the
concern.
(7) Taxation Authorities : Taxation authorities also need accounting information for tax
purposes.
(8) Stock Exchanges : Stock exchanges also require Financial Statements for listing of
securities and other matter connected with stock dealings.
(9) Trade Associations : Various trade associations like chambers of commerce use the
Financial Statements to determine the working results of their member units so that if
need be, they may negotiate with the govt. for various concessions.
(10) Newspapers: Various dailies or weekly magazines especially related to
economic matters need Financial Statements of various business units for bringing them
to the knowledge of general public.

Limitations of Financial Statements

(a) No record of important non–monetary information: Financial Statements

takes into consideration only monetary transactions. A transaction, however important,
will not be shown in the Financial Statements, if it cannot be expressed in the monetary
terms. For example; the extent of competition faced by the business is an important
matter in which the management is highly interested, but accounting is not tailored to
consider such events. Hence greatest limitation of Financial Statements is the
consideration of only monetary transactions.
 (b) Window Dressing: Sometimes Financial Statements prepared by the
accountants is not true and faithful or may be manipulated by the accountants. When
accounts are manipulated and present the Financial Statements to show the better
position of the business than the actual position, it is known as window dressing. In such
a situation results provided by the Financial Statements are not true and fair and does
not show the actual financial position of the business.

(c) No consideration of price level changes: The most serious limitation of Financial
Statements is adoption of historic cost concept for recording various assets irrespective
of subsequent change in their prices.

(d) Lack of uniformity in recording methods: Though some generally accepted

accounting principles are followed for recording purposes still more than one principle
is used for treating the same item. For example; some concerns value their stock on LIFO
(last in first out) method while others follow FIFO (first in first out) method. The uses of
different accounting methods render the financial statements incomparable.

(e) Subjective approach: Financial Statements of a business unit are framed by the
accountant according to his own personal judgment and ability. Hence the Financial
Statements based on personal judgment make the records only ‘approximations’ and not
‘authoritative’.

(f) Conservative approach: Due to application of concept of ‘conservation’ all

losses are provided for but no provision is made in the books for prospective profits.
Hence conservative approach is another limitation of Financial Statements.

(g) ‘Post–mortem’ analysis of past records: Financial Statements provide

information at the end of the accounting period in the form of annual accounts. Financial
Statements at the best is only of historical nature and cannot be used to take corrective
action. The business requires timely information at frequent intervals to help
management to make plans and take corrective measures. But the Financial Statements
is not supposed to supply such information at shorter intervals than one year.

Balance Sheet as per the Revised Schedule VI

The main purpose of Revised Schedule –VI is to maintain the transparency in financial
statements.

Only two parts- Part I(Balance Sheet) and Part II (Statement of Profit and Loss) Part III
(Interpretation) and Part IV (Balance sheet Abstract of company’s general business profile)
omitted.

Net working capital will not be appearing on Balance sheet.

 Fixed assets should be categorized as (a) Fixed Tangible Assets (b) Fixed Intangible Assets.

Long term borrowings to be shown under non-current liabilities and short term
borrowings to be shown under current liabilities.

Current maturities of long term debt to be disclosed under other current liabilities.

Proforma of Balance Sheet

Name of the Company ……………………………………..

Balance Sheet as at……………………………………..
(in Rs.………..)

Particulars Note Figures as Figures as

No. at at
the end of the end of
current previous
reporting reporting
period period

A. EQUITY AND LIABILITIES

(1) Shareholders’ Funds

(a) Share capital
(b) Reserves and surplus
(c) Money received against share Warrants

(2) Share application money pending

Allotment

(3) Non – current liabilities

(a) Long term borrowings
(b) Deferred tax liabilities (net)
(c) Other long term liabilities
(d) Long term provisions

(4) Current liabilities

(a) Short term borrowings
(b) Trade payables
(c) Other current liabilities
(d) Short term provisions
Total
B. Assets

1) Non-Current Assets
(a) Fixed assets
(i) Tangible assets
(ii) Intangible assets
(iii) Capital work in progress
(iv) Intangible assets under
development
(b) Non-current investments
(c) Deferred tax assets (net)
(d) Long term loans and advances
(e) Other non-current assets

(2) Current Assets

(a) Current investments
(b) Inventories
(c) Trade receivables
(d) Cash and cash equivalents
(e) Short term loans and advances
(f) Other current assets

Total

Hence we see that there are only four major headings under equity and liability side whereas

Asset side consist of only two majour heading

Subheading under various major heading

Equity and Liability

(1) Shareholder's Fund

(a) Share Capital

(b) Reserves and Surplus

(c) Money received against share warrants

(2) Non Current Liabilities

(a) Long term borrowings - Bonds, Debenture, loans from Banks etc are included.

(b) Deferred tax liabilities.

(c) Other long term liabilities - It include trade payable which outstanding for more than 12
months.
(3) Current Liabilities

(a) Short term borrowings

(b) Trade Payables (Creditors and Bils Payable)

(c) Other Current Liabilities - Include current maturities of long-term debt., Interest
accrued but not due & interest acerued and due on borrowings, outstanding expenses, calls
in advance, unclaimed dividends etc.

ASSETS

(1) Non Current Assets

(a) Fixed Assets :- This subheading is divided into tangible, Intangible Assets and
Capital- work-in-progress.

(b) Non-Current Investments.

(c) Deferred Tax Assets

(d) Long term Loans and Advances

(e) Other Non-Current Assets

(2) Current Assets

(a) Current Investment (i.e. upto one year)

(b) Inventories - Raw material, stock in trade work in progress, stores and

spares and loose tools etc. are also included alongwith the finished goods

(c) Trade Receivables - Sundry Debtors, Bills Receivable

(d) Cash and Cash Equivalents

(e) Short term loan and advances

(f) Other current Assets - It include prepaid expenses, interest ocerued on investments etc.

Note-

1. Miscelaneous Expenditure and the Negative Balance of Statement of Profit & Loss are
not shown separately.

2. Statement of Profit & Loss - Negative Balance is shown as a minus item under Reserve and
Surplus.
3. Miscelaneous Expenditure items are Deducted from the Reserves and Surplus and liability
heading and in the absence of such a reserve these are shown as a other Non- Current Assets or
other current Assets as per instructions.

Contingent Liabilities :- These are the liabilities which are not liabilities on the date but may
arise upon the happening

of a certain event. These are not added in the Amount of liabilities and are shown only
as footnotes. Remember some examples :-

- Disputed claims not as knowledge as debts on that date

- Uncaled liability on partly paid shares

- Arrears of dividends on cumulative preference shares.

- Bils discounted but not matured

- Guarantee for loans

I. ITEMS APPEARING UNDER THE HEAD EQUITY AND LIABILITIES IN THE BALANCE SHEET
(1) Shareholders Funds

(a) Share Capital: Under the head, ‘Share Capital’, some of the important items to be shown are as
under :

(i) Number and amount of shares authorized.

(ii) Number of shares issued. Subscribed and fully paid up and subscribed but not fully
paid up.

(iii) Par value per share.

(iv) A reconciliation of the number of shares outstanding at the beginning and at the end of
the reporting period.

(v) Shares in the company held by each share holder holding more than 5% shares
specifying the number of shares held.

(vi) Aggregate number and class of shares allotted as fully paid up for consideration other
than cash.

(vii) Aggregate number and class of shares allotted as fully paid up by way of bonus shares

(viii) Calls unpaid (showing aggregate value of calls unpaid by directors and officers.)

(ix) Forfeited shares (amount originally paid up).

(b) Reserve and Surplus: Under this head the following items are shown:
 (i) Capital Reserves ;

(ii) Capital Redemption Reserve;

(iii) Securities Premium Reserve;

(iv) Debenture Redemption Reserve;

(v) Revaluation Reserve (Accounting Treatment not to be Evaluated);

(vi) Share options Outstanding Account (Accounting Treatment not to be evaluated);

(vii) Others reserve (restricted to General Reserve only);

(viii) Surplus i.e. balance in Statement of Profit & Loss.

(c) Money received against share warrants (Accounting Treatment not to be evaluated):
A share warrant is a financial instrument which gives holder the right to acquire equity shares.
A disclosure of the money received against share warrants is to be made since shares are yet to
be allotted against the share warrants. These are not shown as part of share capital but to be
shown as a separate line items.

(2) Share application money pending allotment (Accounting Treatment not to be

evaluated): If company has issued shares but date of allotment falls after the balance sheet date,
such application money pending allotment will be shown in the following manner:

(i) Share application money not exceeding the issued capital and to extent not refundable is to
be disclosed under this line-item.

(ii) Share application money to the extent refundable or where minimum subscription is not
met, such amount shall be shown separately under ‘Other Current liabilities’

(3) Non-current liabilities: A non-current Liability is a liability which is not classified as current-
liability. A liability is classified as current when it satisfies any one of the following conditions:

(i) It is expected to be settled in the company’s normal operating cycle. Operating cycle
means the time between the acquisition of assets for processing and their realization in
cash or cash equivalents. It may vary from few days to few years. Where the operating
cycle cannot be identified, it is assumed to have a duration of 12 months.

(ii) It is held for the purpose of being traded.

(iii) It is due to be settled within 12 months after the reporting date.

(iv) The company does not have an unconditional right to defer settlement of the liability
for at least 12 months after the reporting date.

Hence, the liabilities which are not classified as current shall be classified as ‘Non-current’.
(a) Long Term borrowing (Debentures / Bonds, Long Term Loans etc.)
(b) Deferred Tax Liabilities (Net).
(c) Other Long Term Liabilities
1. Non-Current Assets:
(a) Fixed Assets: Assets which are required for purpose of reuse in the business but not for
purpose of resale.
(i) Tangible Assets: Tangible assets are assets which can be physically seen and touched. (Land,
Building, Plant and Equipment, Furniture & Fixture, Vehicles, Office Equipments, Others).

(ii) Intangible Assets: Intangible Assets are those which are not tangible.
(a) Goodwill
(b) Brand / Trademarks
(c) Computer Software & Mining rights
(d) Masthead and Publishing titles.
(e) Copyrights, and patents and other intellectual property rights, services and
operating rights.
(f) Recipes, formulae, models, designs and prototypes
(g) Licenses and franchise

(iii) Capital work in Progress.

(iv) Intangible Assets under Development – like patents, intellectual property rights, etc. which are
being developed by the company.

(b) Non-Current Investments: Non-current Investments are investments which are held not
with the purpose to resell but to retain them. Non-current Investments are further classified into ‘
Trade Investments’ and ‘ Other Investments’.
Trade Investments are investments made by a company in share or debentures of another
company, not being its subsidiary, to promote its own trade and business. Other Investments are
those investments which are not trade investments.
(c) Deferred Tax Assets (Net).
(d) Long-term Loans and Advances – only Capital Advances and Security Deposits.
(e) Other non-current assets.
2. Current Assets
(a) Current Investments – Investment which are held to be converted into cash within a short
period i.e., within 12 months (Investments in Equity Instrument, Preference shares, Government
Securities, Debentures, Mutual Funds etc.)
(b) Inventories : Inventories include the following:
(i) Raw Material
(ii) Work-in-progress
(iii) Finished Goods
(iv) Goods acquired for trading
(v) Stores and Spares
(vi) Loose tools.
(c) Trade Receivables: Trade receivables refer to the amount due on account of goods sold or
services rendered in the normal course of business. It includes both Debtors and Bills receivables.
(d) Cash and cash equivalents – as discussed in the salient features of Schedule-VI in General
Instructions.
(e) Short-term Loans and Advances
(f) Other Current Assets (Restricted to Prepaid expenses, accrued incomes and advance tax
only)

Preparation of Statement of Profit and Loss or Income Statement as per Revised Schedule
VI
As per the Revised Schedule VI of the Companies Act, 1956 Statement of Profit and Loss or income
statement is to be prepared according to the new guidelines.
Proforma of Statement of Profit & Loss or Income Statement

Particulars Figures for Figures for the

Note the current previous
No. reporting reporting
period period
I. Revenue from operations xxxx xxxx
II. Other Income xxxx xxxx
III. Total Revenue (I + II) xxxx xxxx
IV. Expenses
Cost of Material Consumed xxxx xxxx
Purchases of Stock-in-Trade xxxx xxxx
Changes in Inventories of finished xxxx xxxx
goods,
Work-in-progress and Stock-in-Trade xxxx xxxx
Employee benefits expense xxxx xxxx
Finance Costs xxxx xxxx
Depreciation and Amortisation xxxx xxxx
expenses xxxx xxxx
Other expenses
Total expenses

V. Profit before exceptional and extraordinary xxxx xxxx

items and tax (III –IV)
VI. Exceptional items xxxx xxxx
VII. Profit before extraordinary items and tax xxxx xxxx
(V –VI)
VIII. Extraordinary items xxxx xxxx
IX. Profit Before Tax (VII – VIII) xxxx xxxx
X. Tax Expense:
(1) Current Tax xxxx xxxx
(2) Deferred Tax xxxx xxxx
XI. Profit (Loss) for the period from continuing xxxx xxxx
operations (VII –VIII)
XII. Profit (Loss) from discounting operations xxxx xxxx
XIII. Tax expense of discontinuing operations xxxx xxxx
XIV. Profit (Loss) from discounting operations xxxx xxxx
(after Tax) (XII –XIII)
XV. Profit (Loss) for the period (XI – XIV) xxxx xxxx
XVI. Earnings per Equity Share :
(i) Basic xxxx xxxx
(ii) Diluted xxxx xxxx

Tool of Financial Analysis

Comparative Statement :- Financial Statement of two years is compared. Absolute change

and then the percentage change in figure are calculated. It is a form of Horizontal Analysis.

Common Size Statement : Various figure of single year financial Statement are converted in to
percentage with resepect to some common base. In Income Statement sales in take as base
(i.e.100) where as in Balance Shettotal assets are taken as base.

Trend Analysis :- Here trend percentage are calculted for a number of years taking one year
as a base year. This helps is assessing the trend of increase or decrease in various items.

Accounting Ratios :- Study of relationship between various items is known as Ratio analysis.

Cash Flow Statement :- It shows the inflow and outflow of cash and cash equivalents during
a particular period which helps in finding out the causes of changes in cash between the two
dates.

Fund Flow Statement :- It indicates the reasons of changing in working capital during a
particular time period. It shows sources (inflow) and Applications (Outflow) of funds.

Break - even Analysis :- It is a point where total of sales is exactly equal to the total of cost to
the total of cost of sales i.e. the firm has neither any profit nor any loss. It is also known as no
profit no loss point.

Comparative Balance Sheet

Comparative Balance Sheet is prepared to show financial differences between several accounting
periods. The main purpose of Comparative Balance Sheet is to compare the assets, liabilities and
capital and to show the increase and decrease in these items.

According to Prof. Foulkey, “Comparative Balance Sheet analysis is the study of the trend of the
same items, group of items and computed items in two or more balance sheets of the same
business enterprise on different dates.”
Steps Involved

Step 1. All Assets and Liabilities are shown in the first Column (Particulars Column)

Step 2. All Assets and Liabilities of previous year’s are shown in the second column

Step 3. All Assets and Liabilities of Current year’s are shown in the third column

Step 4. Previous year’s Assets and Liabilities are compared with the current year’s Assets and
liabilities, to know the absolute change (increase of decrease)

Step 5. Percentage Change is calculated by using the following formula:

Percentage Change = Absolute Change x 100

Previous year’s Figure

Proforma of Comparative Balance Sheet

Note Current Previous Absolute Change % Change

Particulars No. Year Year (increase/decrease) (%
(Rs.) (Rs.) increase
OR %
decrease)

I. EQUITY AND
LIABILITIES
(1) Shareholders’
Funds
(a) Share capital xxxx xxxx xxxx xxxx
(i) Equity Share xxxx xxxx xxxx xxxx
Capital xxxx xxxx xxxx xxxx
(ii) Pref. Share
Capital
(b) Reserves and xxxx xxxx xxxx xxxx
surplus xxxx xxxx xxxx xxxx
(See note given xxxx xxxx xxxx xxxx
below)
(2) Non – current xxxx xxxx xxxx xxxx
Liabilities xxxx xxxx xxxx xxxx
(a) Long term xxxx xxxx xxxx xxxx
borrowings xxxx xxxx xxxx xxxx
(b) Other long term xxxx xxxx xxxx xxxx
liabilities
(c) Long term
provisions
(4) Current
liabilities
(a) Short term
borrowings
(b) Trade payables
(c) Other current
liabilities
(d) Short term
provisions
Total

II. Assets
(1) Non-Current
Assets
(a) Fixed assets xxxx xxxx xxxx xxxx
(i) Tangible xxxx xxxx xxxx xxxx
assets xxxx xxxx xxxx xxxx
(ii) Intangible
assets xxxx xxxx xxxx xxxx
(iii) Capital
work in progress xxxx xxxx xxxx xxxx
(iv) Intangible xxxx xxxx xxxx xxxx
assets under xxxx xxxx xxxx xxxx
development
(b) Non-current xxxx xxxx xxxx xxxx
investments
(c) Deferred tax xxxx xxxx xxxx xxxx
assets (net) xxxx xxxx xxxx xxxx
(d) Long term loans xxxx xxxx xxxx xxxx
and advances xxxx xxxx xxxx xxxx
(e) Other non- xxxx xxxx xxxx xxxx
current assets
(2) Current Assets xxxx xxxx xxxx xxxx
(a) Current
investments xxxx xxxx xxxx xxxx
(b) Inventories
(c) Trade
receivables
(d) Cash and cash
equivalents
(e) Short term loans
and advances
(f) Other current
assets

Total

COMPARATIVE INCOME STATEMENT

Income Statement indicates net profit or net loss of a business for the year. The income
statement is the one of the three major financial statements. The other two are the Balance Sheet
and the Cash Flow Statement (Inflow and outflow of Cash).

Importance of Comparative Statement

- To make the data simple and more understandable.

- To indicate the trend with respect to the previous year.

 - To compare the firm performance with the performance of other firm in the same business

Steps involved in preparation of Comparative Income Statement

Step 1. Record ‘Revenue from Operation’ i.e. Net Sales, Revenue from Services etc.

Step 2. Record ‘Other Incomes’ i.e. Dividend Received, Rent Received & Interest etc.

Step 3. Record Expenses i.e. Cost of material purchased, Purchases of Stock in trade, Change in
inventories, Employees benefit expenses, Depreciation and Amortization, and other expenses etc.

Step 4. Find out the profit before tax (Revenue from operation + other incomes – Expenses)

Step 5. Deduct Income Tax from Profit before tax to find out the ‘Profit After Tax’.

Step 6. Find out Absolute Change (Increase or decrease)

Step 7. Find out Percentage Change by using the following formula:

Percentage Change = Absolute Change x 100

Previous year’s Figure

Proforma of Comparative Income Statement

Comparative Income Statement

Particulars Note Current Previous Absolute %

No. Year’s Year’s Change Change
Figures Figures

I. Revenue from Operations xxxx xxxx xxxx xxxx

II. Other Income xxxx xxxx xxxx xxxx

III. Total Revenue (I + II) xxxx xxxx xxxx xxxx

IV. Expenses :
xxxx xxxx xxxx xxxx
Cost of Material Consumed
xxxx xxxx xxxx xxxx
Purchase of Stock-in-Trade
xxxx xxxx xxxx xxxx
Changes in Inventories of
xxxx xxxx xxxx xxxx
Finished Goods
xxxx xxxx xxxx xxxx
Work-in-Progress and Stock-in-
xxxx xxxx xxxx xxxx
Trade
xxxx xxxx xxxx xxxx
Employee Benefits Expenses
xxxx xxxx xxxx xxxx
 Finance Costs
Depreciation and Amortisation xxxx xxxx xxxx xxxx
Expenses
Other Expenses

Total Expenses

V. Profit Before Tax (III – IV)

Less : Income Tax

xxxx xxxx xxxx xxxx
VI. Profit After Tax

xxxx xxxx xxxx xxxx

xxxx xxxx xxxx xxxx

Common Size Statement Preparation

STEPS

1. Put the absolute amounts of two years side by side. Previous year's amount in the
first column and current year in the 2nd column.

2. Calculate the percentage of each items w.r.t the common base by using the
formula Percentage of the item =

Absolute figure of the item of the year x 100/Base figure of that year

3. Base figure for the Income statement is taken as total sales whereas for Balance Sheet it is
total assets.

4. 3rd column is for Previous year's Percentage and 4th column is for current
year's percentage.

Importance of Common Size Statements

- Provides common base for comparison irrespective of the size of individual item.

- It presents the change in various items in relation is net sales, total assets or total liabilities.

- It establish the trend in various items of financial statements.

Proforma of Common Size Statements

 Particulars Note Year Year % %
No. 2012 2013 Change Change
2012 2013

I. Revenue from Operations xxxx xxxx xxxx xxxx

II. Other Income xxxx xxxx xxxx xxxx

III. Total Revenue (I + II) xxxx xxxx xxxx xxxx

IV. Expenses :
xxxx xxxx xxxx xxxx
Cost of Material Consumed
xxxx xxxx xxxx xxxx
Purchase of Stock-in-Trade
xxxx xxxx xxxx xxxx
Changes in Inventories of
Finished Goods
xxxx xxxx xxxx xxxx
Work-in-Progress and Stock-in-
xxxx xxxx xxxx xxxx
Trade
xxxx xxxx xxxx xxxx
Employee Benefits Expenses
xxxx xxxx xxxx xxxx
Finance Costs
Depreciation and Amortisation
xxxx xxxx xxxx xxxx
Expenses
Other Expenses
xxxx xxxx xxxx xxxx
Total Expenses xxxx xxxx xxxx xxxx
V. Profit Before Tax (III – IV)
xxxx xxxx xxxx xxxx
Less : Income Tax
xxxx xxxx xxxx xxxx
VI. Profit After Tax