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Comparative statement
- 1. Dr.E.RAMAPRABA, ASSISTANT PROFESSOR OFCOMMERCE BON SECOURS COLLEGE FOR WOMEN, THANJAVUR. Comparative Balance Sheet Base: First year Analysis: Horizontal Comparative Balance sheet as on _________ Particular Previous year Current year Increase (Or) Decrease 1. Assets Current assets Cash /bank, Debtors Bills receivables Prepaid expenses Outstanding income Stock Short term investments Total current assets- A Fixed assets Land and Building Plant and Machinery Furniture and fixtures Total fixed assets – B Total assets C = A + B 2. Liabilities and Capital: Current Liabilities: Bank Overdraft Creditors, bills payable
- 2. Prepaid income Outstanding expenses Provision for taxation Total current liabilities – A Long term liabilities Debentures Term loans Total long term liabilities – B Total liabilities A+B = C 3.Capital and Reserves Share Capital Retained earnings(P&L A/C) Reserve &Surplus Total Shareholders fund-- D Total Liabilities & Capital E=C+D Equations in Relation to Income Statement: In Simple: Operating Income (GP) – Operating Expenses = Operating Profit Operating Profit + Non-Operating Income = Total Operating Profit Total Operating Profit –Non Operating Expenses = Net Profit In short Operating profit = Operating Income (GP) – Operating Expenses (Or) = (Sales – CGS) –Operating Expenses (Or) = NP + Non-Operating Expenses – Non-Operating Income Comparative Income Statement Income statement, otherwise called profit and loss account, is the mirror which shows the operative result of a firm. When income statement is prepared for two consecutive years, it is called comparative income statement. Comparative income statement reveals the differences in
- 3. accounting figures withregard to sales, cost of sales, operating expenses and operating profit between two dates of income statement. The difference might be either increase or decrease. The change is also expressed in percentage. Specimen of comparative income statement with imaginary figures for the years ended 31st Dec.2009 and 2010 2009 Rs. 2010 Rs. Increase or Decrease In amount Rs In percentage % Net sales 80,000 1,00,000 + 20,000 + 25 Less: Cost of goods sold 60,000 75,000 + 15,000 + 25 Gross profit 20,000 25,000 + 5,000 + 25 Less: operating expenses: Administrative 2,000 2,000 – – Selling 3,000 4,000 + 1,000 + 33.33 Total operating expenses 5,000 6,000 + 1,000 + 20 Operating profit 15,000 19,000 +4,000 + 26.7 The comparative income statement exhibits the progress of a business over a period of time. The changes in absolute data and percentages can be analyzed and eventually the profitability of the business can be determined. SUM NO.: 1 The income statements of a concern are given for the years ending on 31st Dec.2008 and 2009. Prepare a comparative income statement and study the profitability position of the concern. Particulars 2008 Rs. 2009 Rs. Net sales Add: Cost of goods sold Operating expenses: General and administrative expenses Selling expenses Non - operating expenses: Interest paid Income - tax 78,500 45,000 7,000 8,000 2,500 7,000 90,000 50,000 7,200 9,000 3,000 8,000
- 4. Solution: Base: First year Analysis:Horizontal Comparative income statement for the years ended 31st Dec.2008 and 2009 Base on first year Analysis; Horizontal 31st Dec. 2008 Rs. 31st Dec. 2009 Rs. Increase (+)/ Decrease (-) in Rs. Increase (+) or Decrease (-) in % Net Sales 78,500 90,000 +11,500 +14.65 Less: Cost of goods sold 45,000 50,000 +5,000 +11.11 Gross profit (a) 33,500 40,000 +6,500 +19.40 Less: Operating expenses: General Administrative expenses 7,000 7,200 +200 +2.86 Selling expenses 8,000 9,000 +1,000 +12.50 Total operating expenses (b) 15,000 16,200 +1,200 +8.00 Operating profit c = a-b 18,500 23,800 +5,300 +28.65 Less: Non-operating expenses: Interest paid 2,500 3,000 +500 +20.0 Net profit before tax 16,000 20,800 +4,800 +30.00 Less: Income Tax 7,000 8,000 +1,000 +14.28 Net Profit After Tax 9,000 12,800 +3,800 +42.22 Comparative Balance Sheet Comparative balance sheet is otherwise known as comparative position statement. A firm’s financial position can be known through its balance sheet as on a particular data i.e, on the closing date. A firm’s financial soundness between two dates of balance sheet can be determined through comparative balance sheet. When a firm prepares comparative balance sheet for two different or subsequent years, it facilitates intra-firm comparison. The current year’s position is compared with the previous year and accordingly the status of financial soundness can be determined. The financial status might be either positive or negative. When a comparative balance sheet is prepared for different firms, it facilitates inter-firm comparison. The comparative balance sheet analysis is the study of the trend of the same items, group of items and computed items in two or more balance sheets of the same business enterprise on different dates.
- 5. Specimen of acomparative balance sheet (with imaginary accounting figures) Comparative Balance sheet as on 31-03-2011 and 31-03-2012 Base on: first year Analysis: Horizontal 2011 Rs. 2012 Rs. Change in Rs. Change in % Assets: Fixed assets Investments Current assets Total assets 6,00,000 1,00,000 3,00,000 10,00,000 7,20,000 1,00,000 2,10,000 10,30,00 1,20,000 – (90,000) 30,000 20 – (−) 30 3 Liabilities and capital Equity share capital Reserves and surplus Long term loans Current liabilities Total liabilities and capital 5,00,000 1,00,000 3,00,000 1,00,000 10,00,000 5,00,000 1,20,000 3,00,000 1,10,000 10,30,000 – 20,000 – 10,000 30,000 – 20 – 10 3 SUM NO.:2 Given below are the balance sheets of Archana Ltd. as on 30th June 2010 and 2011: Liabilities 2010 Rs. 2011 Rs. Assets 2010 Rs. 2011 Rs. Share capital Reserves Loan Current Liabilities 2,00,000 2,00,000 40,000 60,000 3,00,000 2,00,000 1,60,000 1,00,000 Fixed Assets Current Assets 4,00,000 1,00,000 6,00,000 1,60,000 5,00,000 7,60,000 5,00,000 7,60,000 Prepare a comparative Balance sheet Solution: Comparative balance sheet of Archana Ltd.as on 30th June 2010 and 2011 Base on: first year Analysis: Horizontal Particulars 2010 2011 Change in Rs. Change in %
- 6. Fixed Assets 4,00,0006,00,000 2,00,000 50 Current Assets 1,00,000 1,60,000 60,000 60 Total Assets 5,00,000 7,60,000 2,60,000 52 Liabilities and capital Share capital 2,00,000 3,00,000 1,00,000 50 Reserves 2,00,000 2,00,000 – – Loan 40,000 1,60,000 1,20,000 300 Current Liabilities 60,000 1,00,000 40,000 66.67 Total liabilities and capital 5,00,000 7,60,000 2,60,000 52 SUM NO.:3 Prepare comparative statements from the following data: Income statements Particulars 2008 Rs. 2009 Rs. Net sales 6,00,000 7,50,000 Cost of goods sold 4,00,000 6,00,000 Administration expenses 20, 000 20,000 Selling expenses 10, 000 10,000 Net profit 1,70, 000 1,20,000 Position statements 2008 2009 Equity capital 4, 00,000 4, 00,000 8% preference share capital 3, 00,000 3, 00,000 Reserves 2, 00,000 2, 45,000 5% Debentures 1, 00,000 1, 50,000 Bills payable 50,000 75,000 Creditors 1, 50,000 2, 00,000 Tax payable 1, 00,000 1, 50,000 Total Liabilities and Capital 13, 00,000 15, 20,000 Land 1, 00,000 1, 00,000 Buildings 3, 00,000 2, 70,000 Plant 3, 00,000 2, 70,000 Furniture 1, 00,000 1, 40,000 Stock 2, 00,000 3, 00,000
- 7. Cash 3, 00,0004, 40,000 Total Assets 13, 00,000 15, 20,000 Solution: Comparative Income Statement for the years ended 2008 and 2009 Base on: first year Analysis: Horizontal Particulars 2008 Rs. 2009 Rs. Increase /Decrease Rs. Increase /Decrease % Net sales 6,00,000 7,50,000 +1,50,000 +25 Less: Cost of goods sold 4,00,000 6,00,000 +2,00,000 +50 Gross Profit (A) 2,00,000 1,50,000 −50,000 −25 Operating expenses: Administrative expenses 20,000 20,000 − − Selling expenses 10,000 10,000 − − Total operating expenses (B) 30,000 30,000 − − Operating profit (C) (A-B) 1,70,000 1,20,000 −50,000 −29.41 Less: Non-operating expenses Net profit 1,70,000 1,20,000 −50,000 −29.41 Comparative Balance Sheet as on the closing dates of 2008 and 2009 Particulars 2008 Rs. 2009 Rs. Increase/ Decrease Rs. Increase/ Decrease % ASSETS Current Assets: Cash 3,00,000 4,40,000 +1,40,000 +46.67 Stock 2,00,000 3,00,000 +1,00,000 +50.00 Total current assets 5,00,000 7,40,000 +2,40,000 +48.00 Fixed Assets: Land 1,00,000 1,00,000 Building 3,00,000 2,70,000 –30,000 10 Plant 3,00,000 2,70,000 –30,000 10
- 8. Furniture 1,00,000 1,40,000+40,000 +40 Total fixed assets 8,00,000 7,80,000 –20,000 2.50 Total assets 13,00,000 15,20,000 +2,20,000 +16.92 LIABILITIES AND CAPITAL Current Liabilities: Bills payable 50,000 75,000 +25,000 +50.00 Creditors 1,50,000 2,00,000 +50,000 +33.3 Tax payable 1,00,000 1,50,000 +50,000 +50.00 Total current liabilities 3,00,000 4,25,000 +1,25,000 +41.67 Long term Liabilities 5% debentures 1,00,000 1,50,000 +50,000 +50.00 Total liabilities 4,00,000 5,75,000 +1,75,000 +43.75 CAPITAL Equity share capital 4,00,000 4,00,000 – – 8% Preferential share capital 3,00,000 3,00,00 – – Reserves 2,00,000 2,45,000 +45,000 +22.50 Total capital 9,00,000 9,45,000 +45,000 +5.00 Total liabilities and capital 13,00,000 15,20,000 +2,20,000 +16.92 Interpretation: 1. The comparative income statement clearly shows that though there has been an increase in net sales to the extent of 25%, the cost of goods sold has been increased to 50% causing a decrease in gross profit of 25%. Although the operating expenses have remained constant, there has been decrease in net profit of 29.4%. Hence, the company should look into this very seriously so as to reduce cost of goods sold and enhance net profit. 2. The comparative balance sheet vividly exhibits that during 2009 there has been increase in long-term liabilities to the tune of Rs.50, 000 yet fixed assets have been decreased by 2.5%. Thus, it is inferred that the company has used long-term funds to finance additional working capital. In 2009, the current assets have increased by 48%. And, there has been sufficient increase in cash and stock while the current liabilities have increased in 2009 by 41.67%. Thus, it is evident that the company’s liquidity position is sound.