DK Goel Solutions Class 12 Accountancy Chapter 4 Common Size Statements

Short Answer Questions

Question .1.

Solution . 1 Common Size Statement Express all items of a financial statement as a percentages of some common base such as revenue from operations for profit and loss statement and total assets for balance sheet.

Below are the uses of Common Size Statements:-

(i) To present the change in various items in relation to revenue from operations, total assets or total liabilities.

(ii) To provide for a common base for comparison.

Question .2. 

Solution . 2 A Common size balance sheet is a statement in which total of assets or equity and liabilities is assumed to be equal to 100 and all the figures are expressed as percentage of the total. In other words, each asset is expressed as percentage to total assets and each item of equity and liability is expressed as percentage to total equity and liabilities.

Below are the uses of Common Size Balance Sheet:-

(i) To analyse changes in individual items of balance sheet.

(ii) To establish the trend in various items of assets and liabilities.

Question .3. 

Solution . 3 A Common size Statement of Profit and Loss is a statement in which the figure of revenue from operations is assumed to be equal to 100 and all other figures are expressed as percentage of revenue from operations.

The objective of Common Size Statement of Profit and loss:-

(i) To establish a relationship between individual items of statement of profit and loss and revenue from operations.

(ii) To analyse change in individual items of statement of profit and loss in relationship to revenue from operations.

Question .4. 

Solution . 4

Question .5.

Solution . 5

Question .6.

Solution . 6

Question .7. 

Solution . 7 Trend percentages are very useful in making comparative study of the financial statements for a number of years. These indicate the direction of movement over a long time and help an analyst of financial statements to form an opinion as to whether favourable or unfavourable tendencies have developed. This helps in future forecasts of various items.

Numerical Questions

Question .1.

Solution . 1

Question .2. 

Solution . 2

Interpretations:

The analysis of the above comparative balance sheet gives the following conclusions:

(i) Current Assets for the year of 2016 were (21.50 + 16.50 + 4.00) 42% of the total assets and it is increased to (24.60 + 15 + 6.40) 46% in 2017.

(ii) Current liabilities for the year of 2016 were (20.00 + 2.00) 22% of the total liabilities and it is decreased to (19.00 + 1.00) 20% in 2017.

Question .3.

Solution . 3

Comments:-

Below are the observations in the financial position of A Ltd. and B Ltd. on the basis of above Common size balance sheet:

(i) The Share Capital of B Ltd is better as compared to A Ltd.

(ii) The position current liabilities of A Ltd. (10%) are better as compared to B Ltd. (12.50%)

(ii) The long term position of B Ltd. is better as compared to A Ltd.

(iv) The non-current assets of B Ltd. is 18.33% more as compared to A Ltd.

Question .4.

Solution . 4

Question .5. 

Solution .5

Question .6.

Solution . 6

Interpretation:-

The analysis of the above common Size Statement of Profit and loss gives the following conclusions:

(i) Cost of Material Consumed increased by 4% in 2018, which is 48% in 2018 and 44% in 2017. This increment due to cost of raw materials.

(ii) Employee Benefit Expenses reduce by 2% in 2018, which is 12% in 2018 and 10% in 2017.

(iii) Total Expenses reduce by 2% in 2018, which is 63% in 2018 and 61% in 2017. This result of companies better growth and efficiency.

Question .7. 

Solution . 7

Question .8. 

Solution . 8

Question .9. 

Solution . 9

Question .10. 

Solution . 10

Question .11. 

Solution . 11

Question .12. 

Solution . 12

Question .13.

Solution . 13

Question .14.

Solution . 14

Comments:-

Below are the observations in the financial position of X Ltd. and Y Ltd. on the basis of above Common size balance sheet:

(i) The Shareholders Fund of Y Ltd is more as compared to X Ltd.

(ii) The Non-current liabilities of X Ltd. (26.67%) are more B Ltd. (19.44%)

(ii) The Current Liabilities of X Ltd. and Y Ltd. are almost same.

(iv) The Non-current assets of Y Ltd. is 89.89% more as compared to X Ltd.

Question .15. 

Solution . 15

Question .16. 

Solution . 16

Question .17. 

Solution . 17

Question .18. 

Solution . 18

Question .19.

Solution . 19

Question .20.

Solution . 20

Question .21. 

Solution . 21

Point of Knowledge:-

Trend percentages are very useful in making comparative study of the financial statements for a number of years. These indicate the direction of movement over a long time and help an analyst of financial statements to form an opinion as to whether favourable or unfavourable tendencies have developed. This helps in future forecasts of various items.