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Unformatted text preview: f accounting
principles over a period of time is not consistent.
Consistent changes in price levels render accounting
statements useless for comparisons
statements To carry out inter firm comparison the firms need to be
of the same age, size and follow the same principles. If
If the accounting period follows an abnormal period
the analysis would be rendered useless
the 2. Common-Size Statements
It is a statement which facilitates
comparison of two or more
business entities with a common
base 12 Common Size Balance Sheet
Particulars Amt Percentage Sources of Funds
Share Capital 80,000
80,000 64% Reserves 20,000
20,000 16% 100,000 80% Debentures 25,000 20% Loan Fund 25,000 20% Total Capital Employed 1,25,000 100 Fixed Capital 75,000 60% Working Capital 50,000 Total Net Assets Owned 1,25,000 Proprietors Fund
Add Borrowed Funds Application of Funds
Add 13 40%
100 Common Size Income Statement
Particulars Amt % Net Sales 3,17,250 100 Less: Cost of Good Sold 1,77,750 56.02 Gross Profit 1,39,500
1,39,500 43.97 Less: Operating Expenses
Operating Administration and General Expenses
Administration 23,000 7.24 Selling Overheads
Selling 90,000 28.36 Total Operating Expenses 1,13,000 35.61 Net Operation Profit 26,500 8.35 3000 0.94 Loss on Sale of Investment 12,000 3.78 Net Profit before Tax 17,500 5.51 Less: Tax 8,500 2.67 Net Profit After Tax 9000 Add: Non-Operating Profit
Less: Non-Operating Expenses 14 2.83 Advantages It
It reveals the sources of funds and the
application of the total funds in the assets
of a business enterprise.
of It indicates the changing proportion of the
assets, liabilities, costs etc.
assets, It assists corporate evaluation and
ranking. 15 Disadvantag...
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- Spring '14