Chapter Notes - Analysis of Financial Statements Commerce Notes | EduRev

Accountancy Class 12

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Commerce : Chapter Notes - Analysis of Financial Statements Commerce Notes | EduRev

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Tools for financial statement analysis

The various tools used for analysis of financial statements are :

Comparative Statement : Financial Statements of two years are compared and changes in absolute terms and in percentage terms are calculated. It is a form of Horizontal Analysis.

Common Size statement : Figures of Financial statements are converted it to percentage with respect to some common base.

In Common size Income Statement Sales/Revenue from Operations is taken is common base where as in Common size Balance Sheet Total assets or Total Equity and Liabilities are taken as common base.

Ratio Analysis : It is a technique of Study of relationship between various items in the Financial Statements.There are mainly four types of ratios-

1) liquidity ratio

2) solvency ratio

3) activity ratio

4) profitability ratio

Cash Flow Statement : It is a statement that shows the inflow and outflow of cash and cash equivalents during a particular period which helps in finding out the causes of changes in cash position between the two balance sheet dates.It is prepared under accounting standard 3

Comparative Statements

It is a statement that shows changes in each item of the financial statement in absolute amount and in percentage, taking the amounts of the preceding as counting period as the base.

Types of Comparative Statements :

1. Comparative Balance Sheet; and

2. Comparative Statement of Profit and Loss.

Comparative Balance Sheet: It shows the increases and decreases in various items of assets, equity and liabilities in absolute term and in percentage term by taking the corresponding figures in the previous year’s balance sheet as a base.

Format for a Comparative Balance Sheet

Comparative Balance Sheet of............ Ltd.

As at 31st March 2014 and 2015

Particulars

2014

Rs.

(previous

year)

2015

Rs

(current

year).

Absolute

Change

Rs.

(current

year-

previous

year)

Percentage

Change

%

1. EQUITY AND LIABILITIES

 A. Shareholders’ funds

  1. Share capital
  2. Reserves and surplus

 B. Non-current Liabilities

  1. Long-term borrowings
  2. Other Long term liabilities
  3. Long-term provisions

 C. Current liabilities

  1. Short-term borrowings
  2. Trade payables
  3. Other Current liabilities
  4. Short-term provisions

 

 

 

 

Total

 

 

 

 

II. ASSETS

 A. Non-current assets

  1. Fixed assets
  2. Non-current investments
  3. Long-term loans and advances

 B. Current Assets

  1. Current investments
  2. Inventories
  3. Trade receivables
  4. Cash and cash equivalents
  5. Short term loans and advances
  6. Other current assets

Total

 

 

 

 

 

 

 

 

 

*Percentage change = absolute change/ previous year *100 

for example -

pariculars

note no

2016 (A)

2017(B)

absolute change

C= B-A

percentage

C/A*100

share holder fund

 

500000

300000

200000

40

current liabilities

 

30000

20000

10000

50

total liabilities

 

530000

320000

210000

40.38

assets

 

 

 

 

 

fixed assets

 

220000

200000

20000

9.09

current assets

 

310000

120000

190000

61.29

total assets

 

530000

320000

210000

40.38

 

COMPARATIVE STATEMENT OF PROFIT AND LOSS/COMPARATIVE INCOME STATEMENT

Comparative Income Statement: It shows the increases and decreases in various items of income Statement in absolute amount and in percentage amount by taking the  corresponding figures in the previous year’s Income Statement as a base.

Format for a Comparative Statement of Profit and Loss Comparative Statement of Profit and Loss

For the years ended on 31st March, 2014 and 2015

Particulars

2014

Rs.

(previous

year)

2015

Rs.

(current

year)

Absolute

Change

Rs.

(current

year-

previous

year)

Percentage

Change

%

 I. Revenue form operations

 II. Other Income

 III. Total Revenue (I+II)

  IV. Expenses :

  1. Cost of Material consumed
  2. Purchases of Stock-in-Trade
  3. Changes in Inventories of Finished Goods, Work-in-progress and Stock-in-trade
  4. Employees Benefit Expenses
  5. Finance Cost
  6. Depreciation & Amortisation Expenses
  7. Other Expenses

Total Expenses

V. Profit before Tax (III-IV)

Less : Income Tax

VII. Profit after Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

percentage = absolutechange/ previous year*100

Importance of Comparative Statement

To make the data simple and more understandable.

To indicate the trend with respect to the previous year.

To compare the firm performance with the performance of other firm in the same business.

PARTICULARS

2016

(A)

2017

(B)

ABSOLUTE CHANGE

(B-A)

PERCENTAGE

C/A*100

revenue from operation

10,00,000

30,00,000

20,00,000

200

total income (A)

10,00,000

30,00,000

20,00,000

200

cost of production

2,00,000

3,00,000

1,00,000

50

other expenses

1,00,000

2,00,000

1,00,000

100

total expenses(B)

3,00,000

5,00,000

2,00,000

66.7

profit (A-B)

7,00,000

25,00,000

18,00,000

257.14

-TAX

(1,00,000)

(5,00,000)

4,00,000

400

PROFIT AFTER TAX

6,00,000

20,00,000

14,00,000

233.3

 

Common Size Statement

Common Size Financial Statements are the statements in which amounts of the various items of financial statements are converted into percentages to a common base.

Types of Common Size statements :

1. Common Size Balance sheet; and

2. Common Size Statement of Profit and Loss.

Common Size Balance sheet : It is a statement in which every item of assets, equity and liabilities is expressed as a percentage to the total of all assets or to the total of Equity and Liabilities.

Format for a Common Size Balance Sheet :

Common Size Balance Sheet of................. Ltd.

As at 31st March, 2014 and 2015

 

 

Percentage of Balance

Particulars

Absolute Amounts

 

 

 

Sheet Total

 

2014

2015

2014

2015

 

Rs.

Rs.

%

%

1. EQUITY AND LIABILITIES

(1) Shareholders’ funds

Share capital

Reserves and surplus

(3)Non-current Liabilities

Long-term borrowings

Other Long term liabilities

Long-term provisions

(4)Current liabilities

Short-term borrowings

Trade payables

Other Current liabilities

Short-term provisions

 

 

 

 

Total

 

 

 

 

II. ASSETS

(1)Non-current assets

Fixed assets

Non-current investments

Long-term loans and advances

(2)Current Assets

Current investments

Inventories

Trade receivables

Cash and cash equivalents

Short term loans and advances

Other current assets

 

 

 

 

Total

 

 

 

 

 
note - all the items are divided by the total of balance sheet to calculate the percentage.

pariculars

note

no

2016

(A)

2017

(B)

PERCENTAGE 2016

(divide by total

530000)

percentage

2017

(divide by total

320000)

share holder

fund

 

500000

300000

94.3

93.75

current

liabilities

 

30000

20000

5.7

6.25

total liabilities

 

530000

320000

100

100

assets

 

 

 

 

 

fixed assets

 

220000

200000

41.50

62.5

current assets

 

310000

120000

58.49

37.5

total assets

 

530000

320000

100

100

 

Common Size Income Statement or Statement of Profit and Loss: It is a statement in which every item of Statement of Profit and Loss is expressed as a percentage to the amount of Revenue from Operations.

Format for a Common Size Statement of Profit and Loss: Common Size Statement of Profit and Loss

For the years ended on 31st March, 2014 and 2015

 

Particulars

Absolute Amounts

Percentage of Revenue

from operation (Net

Sales)

 

2014

2015

2014

2015

 

Rs.

Rs.

Rs.

Rs.

  1. Revenue from operations
  2. Add : Other Income

 

 

 

 

 

III. Total Revenue (I+II)

IV. Expenses :

a. Cost of Material consumed

b. Purchases of Stock-in-Trade

c. Changes in Inventories of Finished Goods, Work-in-progress and Stock-in­trade

d. Employees Benefit Expenses

e. Finance Cost

f.  Depreciation

g. Other Expenses Total Expenses

V.  Profit before Tax (III-IV)

Less : Income Tax

VII. Profit after Tax

note- all the items are divided by revenue from operations of that year to calculate the percentages.

PARTICULARS

2016

(A)

2017

(B)

PERCENTAGE

2016

(divide by 10,00,000)

PERCENTAGE

2017

(divide by 30,00,000)

revenue from operation

10,00,000

30,00,000

100

100

total income (A)

10,00,000

30,00,000

100

100

cost of production

2,00,000

3,00,000

20

10

other expenses

1,00,000

2,00,000

10

6.67

total expenses(B)

3,00,000

5,00,000

30

16.67

profit (A-B)

7,00,000

25,00,000

70

83.3

-TAX

(1,00,000)

(5,00,000)

10

16.67

PROFIT AFTER TAX

6,00,000

20,00,000

60

66.67

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