Question -
Answer -
Common size statements are of two types:
1. Common Size Income Statements
2. Common Size Balance Sheet
Common size statement is prepared as columnar form for performing analysis. In such a statement each item of the available financial statement is compared to a common item. Such analysis is called as vertical analysis.
Following columns are present:
1. Particulars: It shows the various financial item under each respective headings
2. Amount Columns: Under these columns the amount of each item is depicted along with sub-totals and gross total of a particular year.
3. Percentage/Ratio Columns: Under these columns the proportion of each item is shown as percentage or ratio with reference to common item.
It is prepared in following two ways:
Following example will help get a better understanding of the preparation
Working Note:
For example,