Current 10 disadvantages loose loose their purpose if

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Unformatted text preview: f accounting principles over a period of time is not consistent. principles 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 11 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 base 12 Common Size Balance Sheet Particulars Particulars Amt Percentage Sources of Funds Owned 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 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 Other Income Other 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 It assets, liabilities, costs etc. assets, It assists corporate evaluation and It ranking. ranking. 15 Disadvantag...
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