Question
Explain how common size statements are prepared giving an example.
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Answer
The two Common Size Statements that are most commonly prepared are as follows.
The following are the columns prepared in a Common Size Statement.
Method 1:
Percentage Column is shown beside the Amount Column of the year to which percentage column belongs.
Method 2
Amount Columns are shown first and their percentage columns are shown after the Amount Columns.
The preparation of the Common Size Statements can be better understood by the help of the following example.
Working Note:
Percentage (Previous Year) $=\frac{\text{Previous Year Absolute Figure}}{\text{Balance Sheet Total of Previous Year}}\times100$
Percentage (Current Year) $=\frac{\text{Current Year Absolute Figure}}{\text{Balance Sheet Total of Previous Year}}\times100$
For example,
Percentage of Equity Share Capital (Previous Year) $=\frac{\text{4,00,000}}{\text{10,00,000}}\times100=40\%$
Percentage of Equity Share Capital (Current Year) $=\frac{\text{6,00,000}}{\text{13,20,000}}\times100=45.45\%$
Preparation
Step 1: Title of the Common Size Statement, i.e. ‘Common Size Balance Sheet’ is written on the top of the statement.
Step 2: In the ‘Particulars’ column, the various items of the Balance Sheet are shown under the headings of ‘Assets’ and ‘Equity and Liabilities’.
Step 3: In the ‘Amount’ column, amount of the items are shown in the ‘Year’ column to which they belong
Step 4: The Assets and Liabilities are totaled and are shown separately for each year.
Step 5: In the ‘Percentage’ column, the percentage of each item in comparison to the Total of Balance Sheet are shown.
- Common Size Balance Sheet.
- Common Size Income Statements.
The following are the columns prepared in a Common Size Statement.
- Particulars Column: This column shows the various financial items under their respective heads.
- Amount Columns: These columns depict the amount of each item, sub-totals and the gross total of a particular year.
- Percentage or Ratio Columns: These columns show the proportion of each item to the common item either in terms of percentage or ratio.
Method 1:
Percentage Column is shown beside the Amount Column of the year to which percentage column belongs.
Method 2
Amount Columns are shown first and their percentage columns are shown after the Amount Columns.
The preparation of the Common Size Statements can be better understood by the help of the following example.
Working Note:
Percentage (Previous Year) $=\frac{\text{Previous Year Absolute Figure}}{\text{Balance Sheet Total of Previous Year}}\times100$
Percentage (Current Year) $=\frac{\text{Current Year Absolute Figure}}{\text{Balance Sheet Total of Previous Year}}\times100$
For example,
Percentage of Equity Share Capital (Previous Year) $=\frac{\text{4,00,000}}{\text{10,00,000}}\times100=40\%$
Percentage of Equity Share Capital (Current Year) $=\frac{\text{6,00,000}}{\text{13,20,000}}\times100=45.45\%$
Preparation
Step 1: Title of the Common Size Statement, i.e. ‘Common Size Balance Sheet’ is written on the top of the statement.
Step 2: In the ‘Particulars’ column, the various items of the Balance Sheet are shown under the headings of ‘Assets’ and ‘Equity and Liabilities’.
Step 3: In the ‘Amount’ column, amount of the items are shown in the ‘Year’ column to which they belong
Step 4: The Assets and Liabilities are totaled and are shown separately for each year.
Step 5: In the ‘Percentage’ column, the percentage of each item in comparison to the Total of Balance Sheet are shown.
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