Accountancy 3 Marks Question

In the Common size Statement of Profit and Loss, Revenue from Operations (Net Sales) is taken as 100 and expenses are expressed as percentage of Revenue from Operations (Net Sales). Common-size Statement of Profit and Loss may be prepared for different periods of the firm or for same period of two firms. It shows the relative efficiency i.n operating the business.Objectives of Common size Statement of Profit and Loss (Income Statement):

1. To analyse change in individual items of Income Statement.
2. To study the trend in different items of Incomes and Expenses.
3. To assess the efficiency.

Trend percentages are very useful in making comparative study of the financial statements for a number of years. These indicate the direction of movement over a long time and help an analyst of financial statements to form an opinion as to whether favourable or unfavourable tendencies have developed. This helps in future forecasts of various items.

A common size balance sheet is a statement in which total of assets or equity & liabilities is assumed to be equal to 100 and all the figures are expressed as percentage of the total.Objectives of Common-size Balance Sheet:

1. To analyse the changes in individual items of Balance Sheet.
2. To see the trend of different items of assets, equity and liabilities.
3. To assess the financial soundness and understand financial strategy.

Hint: First of all, figure of Revenue from Operations will be calculated on the basis of 'Other Expenses'.