The document discusses management accounting principles, focusing on financial statement analysis, including common size statements. It explains how common size income statements and balance sheets convert financial figures into percentages, allowing for comparative analysis across periods. Practical problems and illustrations are provided to demonstrate the preparation and interpretation of these financial statements.

1. MANAGEMENTACCOUNTING
FinancialAnalysis and Interpretation :
Common Size Financial StatementAnalysis
Problems 1
By:
Smt.UMA MINAJIGI REUR
HEAD, DEPT. OF COMMERCE & Management
Smt. V G Degree College for Women, Kalaburagi

2. MANAGEMENT
ACCOUNTING
B.COM SIXTH SEMESTER
&
BBA FOURTH SEMESTER
6.3: PRINCIPLES OF MANAGEMENT ACCOUNTING

3. Unit II : Financial Statements :
• Nature, uses and limitations.
• Analysis and interpretations – meaning,
procedure, objectives, and importance.
• Comparative statement,
• Common Size Statements and
• Trend Analysis - practical problems.

4. MANAGEMENTACCOUNTING
FinancialAnalysis and Interpretation :
Comparative Financial StatementAnalysis
Common Size Income Statement
Problems 1

5. Common Size
Financial
Statement
Analysis
Common Size Financial Statements
 When the financial statement, financial data are shown in the shape of
vertical percentage are known as Common Size Statements. In these
statements, all figures are converted into a common unit by expressing
them as percentage of a key figures in the statement.
 The figures are shown as percentage of total assets, total liabilities and
total sales. The analyst is able to assess the figures in relation to total
values.

6. Common Size
Financial
Statement
Analysis
Common size statements may be prepared in the following way:
1. Total assets or liabilities are taken as 100.
2. Individual assets are expressed as percentage of total assets i.e, 100 and
different liabilities are calculated in relation to total liabilities.
Common Size Statements are those statements in which figures reported for
the period are converted into percentage or ratios of a total item.
Types of Common Size Statements
1. Common Size Income Statement
2. Common Size Balance Sheet.

7. Common Size
Income
Statement
Analysis
Common Size Income Statement
 In common Size income statement, the sales figures are taken to be 100%
and all other items of cost of goods sold or cost of sales are expressed as a
percentage of sales.
 A comparative common size income statement for two or more periods
helps to ascertain the efficiency.

8. Common Size
Balance Sheet
Common Size Balance Sheet
 A common size balance sheet shows the percentage in relation to each item
of assets to total assets and each item of liabilities to total liabilities and
capital.
 A comparative common size balance sheet for different periods helps to
understand the trends and reasons for changes in different items.

9. Illustration 1:
From the following information given below you are required to prepare a common size
Income Statement.
Income Statement for 2019-2020
Particulars 31-12-2019 31-12-2020
Amount Amount Amount Amount
I. Continuing operations
1. Revenue from operations 2,80,000 3,30,000
2. Other income - -
Total Revenue 2,80,000 3,30,000
3. Expenses
Cost of Sales 1,70,000 2,10,000
Finance Cost
Other Expenses 44,000 2,14,000 54,000 2,64,000
Profit before tax 66,000 66,000
4. Less: Tax @40% of PBT 26,400 26,400
Profit after Tax 39,600 39,600

10. Solution:
Common Size Income Statement
For the year ended 31st Dec, 2019 and 2020
Particulars 31-12-2019 (Rs.) 31-12-2020 (Rs.)
Amount Percentage Amount Percentage

11. Solution:
Common Size Income Statement
For the year ended 31st Dec, 2019 and 2020
Particulars 31-12-2019 (Rs.) 31-12-2020 (Rs.)
Amount Percentage Amount Percentage
I. Continuing operations
1. Revenue from operations
(Sales) 2,80,000 100 3,30,000 100
Total Revenue (A) 2,80,000 100 3,30,000 100
2. Expenses
Cost of sales 1,70,000 60.72 2,10,000 63.63
Other Expenses
44,000 15.71 54,000 16.36
Total Expenses (B) 2,14,000 76.43 2,64,000 80
Profit Before Tax (A-B) 66,000 23.57 66,000 20
Less: Income Tax 26,400 9.42 26,400 8
Profit After Tax 39,600 14.14 39,600 12
Particulars 31-12-2019 31-12-2020
Amoun
t
Amou
nt
Amou
nt
Amo
unt
I. Continuing
operations
1. Revenue
from
operation
s
2,80,00
0
3,30,0
00
2. Other income - -
Total Revenue 2,80,0
00
3,30,
000
3. Expenses
Cost of Sales 1,70,00
0
2,10,0
00
Finance Cost
Other Expenses
44,000
2,14,0
00 54,000
2,64,
000
Profit before
tax
66,000 66,0
00
4. Less: Tax
@40% of
PBT
26,400 26,4
00
Profit after Tax 39,600 39,6
00

12. Solution:
Working Notes:
Calculation of Percentage to Sales =
Concerned item
X 100
Sales
1. Percentage of Cost of Sales to Sales =
Cost of Sales
X 100
Sales
2019
=
170000
X 100 = 60.72%
280000
2020
=
210000
X 100 = 63.63%
330000
2. Percentage of Other Exp to Sales =
Other Expenses
X 100
Sales
2019
=
44000
X 100 = 15.71%
280000
2020
=
54000
X 100 = 16.36%
330000

13. Solution:
Working Notes:
Calculation of Percentage to Sales =
Concerned item
X 100
Sales
3. Percentage of Income Tax to Sales =
Income Tax
X 100
Sales
2019
=
26400
X 100 = 9.42%
280000
2020
=
26400
X 100 = 8%
330000

14. Interpretation:
1. Percentage of profit in 2020 is decreased as compared to
2019, because of increase in Cost of sales.
2. Increase in other expenses in 2020 as compared in 2019.
3. Decrease in Net profit in 2020 as compared to 2019.

15. Illustration 2:
The following is the profit and loss account of Hubli Ltd. For the year 2020 and its previous year. Convert the following
to Common Size Income Statement.
Profit & Loss A/c
As on 31st Dec, 2019 and 2020
Particulars 31-12-2019 31-12-2020
Amount Amount Amount Amount
I. Continuing operations
1. Revenue from operations 14,19,736 16,40,694
2. Other income 22,090 12,824
Total Revenue 14,41,826 16,53,518
3. Expenses
Cost of Sales 9,26,500 9,67,798
Finance Cost 8,550 7,000
Other Expenses 2,89,216 3,40,238
Profit before tax 2,17,560 3,38,482
4. Less: Tax expenses 86,076 1,60,780
Profit after Tax 1,31,484 1,77,702

16. Notes to Accounts
Particulars 31-12-2019 31-12-2020
Amount Amount Amount Amount
1. Revenue from operations
By, Sales 14,42,912 16,68,500
Less: Returns 23,176 14,19,736 27,806 16,40,694
2. Other income
Dividends 7,590 5,240
Purchase discount 8,500 7,584
Profit on sale of land 6,000 22,090 12,824
3. Cost of Sales 9,26,500 9,67,798
4. Finance Cost
Interest Paid 8,550 7,000
5. Other Expenses
Adm exp 93,062 1,08,274
Selling exp. 1,93,646 2,31,264
Loss on sale of fixed assets 2,508 12,24,266 700 13,15,036
Tax expenses 86,076 1,60,780
Profit after Tax 1,31,484 1,77,702

17. Thank You
Watch next PPT & Video for
Problems on Common Size
Balance Sheet