“Analysis of Financial Statements 181 Test your Understanding -I Fill in the blanks with appropriate word(s): 1, Analysis simply means data. 2, Interpretation means ————data. 3. Comparative analysis is also known as ————— analysis. 4, Common size analysis {s also known as ——————— analysis. 5. The analysis of actual movement of money inflow and outflow in an organisation ts called- analysis. 4.5 Comparative Statements As stated earlier, these statements refer to the statement of profit and loss and the balance sheet prepared by providing columns for the figures for both the current year as well as for the previous year and for the changes during the year, boih in absolute and relative terms. As a result, it is possible to find out yhot only the balances of accounts as on different dates and summaries of different operational activities of different periods, but also the extent of their increase or decrease between these dates. The figures in the comparative statements can be sed for identifying the direction of changes and also the trends in different indicators of performance of an organisation. “The following steps may be followed to prepare the comparative statements: Step 1; List out absolute figures in rupees relating to two points of time (as shown in columns 2 and 3 of Exhibit 4.1). ‘Step 2: Find out change in absolute figures by subtracting the first year (Col.2) from the second year (Col.3) and indicate the change as increase (+) or decrease (and put it in column 4. ‘Step 3: Preferably, also calculate the percentage change as follows and put it in column 5. Absolute Increase or Decrease (Col.4) pcroaltasecmieater ected First year absolute figure (Col.2) Particulars First Year | Second Year | Absolute Percentage Increase (+) or | __ Increase (+) Decrease ()_| or Decrease (-) r 2 3 4 S Re. Rs Rs, %. Exhibit. 4.1182 Accountancy : Company Accounts and Analysis of Financial Statements Illustration 1 Convert the following statement of profit and loss into the comparative statement of profit and loss of BCR Co. Ltd.: Particulars Note] 2013-14 | 201415 No. Bs. Rs. (Revenue from operations 60,00,000 | 75,00,000 (i) Other tneomes 1,50,000 | — 1,20,000 it) Expenses 44,00,000 | 50,60,000 iv) Income tax 35% 40% Solution: Comparative statement of profit and loss for the year ended March 31, 2014 and 2015: Particulars 2015-14] 201415] Absolute | Percentage Increase (+)or| Increase (+) Decrease) | or Decrease (-}| Te Te Ts. % 1. Revenue from operations| 60,00,000] 75,00,000| _15,00,000 25.00 U, Add: Other incomes 150,000] _1.20,000| _(30,000)_| _ (20.00) ML. Total Revenue Ill 61,50,000|76,20.000] 14,70,000 | 23.90 IV Less: Expenses 44,00,000| 50.60.000| 6.60.00 15.00 Profit before tax 17,50,000)25,60,000] 8,10,000 | 46.29 V Less: Tax 6,12,500| 10.24,000] _4,11,500 67.18 Profit after tax 11,87,500]15,36,000| 3,98,500 | 35.03 Mlustration 2 From the following statement of profit and loss of Madhu Co. Ltd., prepare comparative statement of profit and loss for the year ended March $1, 2014 and 2015: Pariculars ‘Note 2015-18 | —20TeIS No. Re, Rs, Revenue from operations 16,00,000 | 20, . 00,000 Employee benefit expenses 8.00.00 | 10,00,000 Other expenses 2,00,000 } —1,00,000 Tax rate 40% >183 “Analysis of Financial Statements Solution: Comparative statement of profit and loss of Madhu Co. Limited Tar the year ended March 31, 2014 and 2015: Faricalars BOISE] DOTEIS | Absolute” Feroentage Increase (+) or} Increase (*) ‘Decrease () lor Decrease (-) Rs Bs. Bs. % 1 Redon seocetion pce Mined) ANAS 25 In. Less: Expenses ‘a) Employee benefit expenses} 8,00.000 10,00,000] 200,000 5 b) Other expenses 2,00,000 | _1.00,000| _(1,00.000) (50) Profit before tax ,00,000 | 9,00,000] 3.00,000 50 In. Less tax @ 40% 2,40,000 | 3.60.00] _1.20.000 50 Profit after tax 3,60,000 | 5,40,000 1,80,000 50 Do it yourself rom the following particulars, prepare comparative statement of profit and loss of Narang Neotours Ltd forthe year ended March 91, 2014 and 2015: Note | 201F 1S |__ 2015-14 ‘No. 7. Revenue from operations 70,00,000 | ~35,00,000 2. Other income 50,000 50,000 3 Cost of material consumed 15,00,000 | 18,00,000 £ Ghanges in inventories of finished goods 10,000 | (15,000) 5. Employee benefit expenses 2,40,000 | 2,40,000 J6. Depreciation and amortisation 25,000 22,500 7. Other expenses 2,66,000 | _3,02,000 8. Profit 20,09,000 14.27,300 Notes to Accounts Particulars BOIEIS] 2015-14 1 Other expenses 4) Power and fuel 36,000} 40,000 i) Carriage outwards 7,500| 9,500, tus) License fees 2\500| 2,500 {y) Selling and distribution 1,70,000 Provision of tax r184 Accountancy : Company Accounts and Analysis of Financial Statements Illustration 3 ‘The following are the Balance Sheets of J. Ltd. as at March 31, 2014 and 2015. Prepare a Comparative balance sheet. Particulars Note | March 31, | March 31, ‘No. 2015 2014 Rs) fRs)} iT. Equity and Liabilities 1. Shareholders’ Funds a) Share capital 20,00,000 15,00,000 b) Reserve and surplus '3,00,000 4,00,000 2. Non-current Liabilities Long-term borrowings 9,00,000 6,00,000 3. Current liabilities ‘Trade payables 3,00,000 | _2,00.000 ‘Total [35,00,000__| 27,00,000 I. Assets 1, Non-current assets a) Fixed assets - Tangible assets 20,00,000 | 15,00,000 ~ Intangible assets 9,00,000 | 6,00,000 2. Current assets ~ Inventories: 3,00,000 4,00,000 Cash and cash equivalents 3,00,000 } 2,00,000 Total [35,00,000_|27,00,000] Solution: Comparative Balance Sheet of J. Limited as at March 31, 2014 and March 2015: (Rs. in Lakhs) Particulars ‘March 31|March 31. | Absolute [Percentage 2014 2015'| “Change | Change | Equity and Liabilities 1. Shareholders’ Funds a) Share capital 15 20 os} sass D) Reserve and surplus om os 2. Non-current Liabilities on (25) a) Long-term borrowings 06 oy 3. Current labilities oI 2 a) Trade payables a os on Total 50 8 xAnalysis of Financial Statements 185 Il. Assets. 1, Non-current assets a) Fixed assets + Tangible assets 15 20 05} 33.33 ~ Intangible assets 06 oo 03 50 b) Currentassets - Inventories 4 03 (01) (25) - Cash and cash equivalents 2. 3 | o1 50 Total 27 35 08 | 29.63 Illustration 4 From the following Balance Sheets of Amrit Limited as at March 31, 2014 and 2015, prepare a comparative balance sheet: ‘Note | March 31, | March 31) pardeler No. 2015 a (Rs) Rs, T. Equity and Liabilities 1. Shareholders’ Funds a) Share capital Teaco b) Reserve and surplus — 2. Non-current Liabilities Sea Garin 16,00,000| 3. Current Habilities ‘Trade payables 2 Aas '55,00,000_| 47,00,00 IL Assets 1. Non-current assets a) Fixed assets = Tangle assets 20,00,000 | 15,00,000| - Intangible asse' 19,00. . mangle 9,00,000 | 16,00,000] ~ Inventories 134 ~ Cash and Cash Equivalents 3.000000 "0-000 on '55,00,000 | 47,00,000]186 Solution: Accountancy : Company Accounts and Analysis of Financial Statements Comparative Balance Sheet of Amrit Limited as at March 31", 2014 and March 31*, 2015 (Rs. in Lakhs) \Particulars [March 31|March 31] Absolute ‘Percentage 2014 | 2015 | Increase(+)or| Increase (+) Decrease (-) | or Decrease (-) Rs. Rs. Rs. % Il. Equity and Liabilities }) Shareholders’ funds a) Share capital 15 20 5 33.33 b) Reserves and surplus 14 13, q) (7.14) 2) Non-current liabilities ‘Long-term borrowings 16 19 3 18.75 3) Current labilities ‘Trade payables 2 3 1 50. tal a7 55 8 17.02 lll. Assets 1) Non-current assets Fixed assets: a) Tangible assets 15 20 5 33.33 }) Intangible assets 16 19 3 18.75 2) Current assets a) Inventories 4 13 a) (7.14) b) Cash and Cash Equivalents 2 3 1 50 ‘otal 47 35 8 17.02 Do it yourself From the Balance Sheets for the year ended March 31, 2014 and 2015, prepare the comparative Balance Sheet of Omega Chemicals Ltd.: Rs, in Lakhs \[_ Particulars Note [2015 | 2014 a 1. Equity and Liabilities 1) Shareholders’ Fund 2) Share capital s | 10 b) Reserve and surplus 3 a 2) Non-current liabilities Long-term borrowings 5 e 3) Current labilities ‘Trade Payable 2 a Total satAnalysis of Financial Statements 187 i Assets 1) Non-current assets a) Fixed assets - Tangible assets ul s - Intangible assets 3a] 2 2) Current assets a) Inventories s| 4 b) Cash and cash equivalents a| 4 Total 24_|_15 4.6 Common Size Statement Common Size Statement, also known as component percentage statement, is a financial tool for studying the key changes and trends in the financial position and operational result of a company. Here, each item in the statement is stated ‘as a percentage of the aggregate, of which that item is a part. For example, a ‘common size balance sheet shows the percentage of each asset to the total assets, ‘and that of each liability to the total liabilities. Similarly, in the common size ‘statement of profit and loss, the items of expenditure are shown as a percentage of the net revenue from operations. If such a statement is prepared for successive periods, it shows the changes of the respective percentages over a period of time. ‘Common size analysis is of immense use for comparing enterprises which differ substantially in size as it provides an insight into the structure of financial ‘statements. Inter-firm comparison or comparison of the company’s position sath the related industry as a whole is possible with the help of common size statement analysis. ‘The following procedure may be adopted for preparing the common size statements. 1. List out absolute figures in rupees at two points of time, say year 1, and year 2 (Column 2 & 4 of Exhibit 4.2). 2. Choose a common base (as 100). For example, revenue may be taken as base (100) in case of statement eat entiaeies total assets or total liabilities (100) in case of balance sheet. 3. For alll items of Col. 2 and 3 work out Column 4 and 5 shows these Resales in Exhibit oe ae Common Size Statement ‘Particulars Year Year Percentage | Percentage one two of year 1 of year 2 1 2 3 4 5 Exhibit 4.2188 Accountancy : Company Accounts and Analysis of Financial Statements Illustration 5 From the following information, prepare a Common size Income Statement for the year ended March 31, 2014 and 2015: Particulars 2014-15) 2013-14] Rs. Rs. Net sales 18,00,000 25,00,000 Cost of good sold 10,00,000 12,00,000 Operating expenses ‘80,000 1,20,000 Non-operating expenses 12,000 15,000 Depreciation 20,000 40,000) ‘Wages 10,000 20,000 Solution: Common Size Income Statement for the year ended March 31, 2013 and March 31, 2014 Particulars ‘Absolute Amounts | Percentage of Net Sales po1s-14| 201415 | 2013-14 | 2014-15 Rs. Rs. 00. oa INet Sales "3,00,000- | 18,00,000 100 100 [i.ess) Gost of goods | 12,00,000 | 10,00,000 48 55.56 Sota" |Gross Profit 13,00,000 | 8,00,000 52 44.44 (Less) Operating 1,20,000 |" 80,000 4.80 444 eee 1,80,000 | 7,20,000 Operating Income 11,80. 204 47.20 40 pening noone, jeg | vane | nag] ott lexpenses Profit 71,65,000 | 7,08,000 F560 3555 > Wages is the part of cost of goods sold; “ Depreciation is the part of operating expenses. Ilustration 6 From the following information, prepare Common size Joss for the year ended March 31, 2014 and March 31,2018 ec | Particulars 2013-14 201415 Revenue a = | Revenue fom operations 35,00,000 | —30,00,000 income '3.25,000 |” 2,50,000Analysis of Financial Statements 189 Employee benefit expen: Other expenses = Income tax (% of the profit before tax) Solution: Common size statement of Profit and Loss for the year ended March 31, 2014 and March 31, 2015: [Particulars “Absolute Amounts Percentage of Net Revenue from operations 2013-14 2014-15 2013-14 2014-15 Re. Re a 0 Revenue from Operations | 25,00,000 | 20,00,000 100 100 da) Other income 325,000 | 2,50,000 13| 125. [Total revenue 28,25,000 | 22,50,000 113 112.5 (Less) expenses: ‘a) Employee benefit 8.25,000 | 4,50,000 3 225 expenses by Other expenses 290.000 f = fore tax 00. PC ee 5,40,000 | 216 fa Profit after tax 72,60,000 504 68 tion 7 aeeare commnod seize Balance Sheet of XRILd. from the following information: ‘Note No.| March 31, March 31, ‘Particulars 2014 2015 es 7. Equity and ‘Liabi "Shareholders Fund 15,00,000 | 12.00.00 a) share CPt us Soo000 | 500,000 9, Roncureent labile 00,000 | 500.000 peur germ borrowings 004 00. 3. Current babllises 15,50,000_|_10,50,000 wal Trade Payabl /41,50,000_|32,50.000 To! ts rae ent acs + ey pixed assets Pangible asset ‘lant & machinery 14,00,000 | 8,00,000 - intangible assets Goodwill 16,00,000 12,00,000 b) Non-current investments: 10,00,000 10,00,000 2, Current assets Inventories 1,50,000 | _2,50.000 ae 1#i,50,000 [32,50,000190 : Accountancy : Company Accounts ‘and Analysis of Financial Statements Solution: Common size Balace Sheet as at March 31, 2014 and March 31 » 2015: Particulars Absolute Amounts Percentage of Total Assets 31.08.2014 | 31.03.2015 | 31.03.2014 |31.03.2015 Bs. Bs. 69 69 II. Equity and Liabilities 1. Shareholders fund a) Share capital 15,00,000 | 12,00,000 36.14 36.93 b) Reserve and surplus | 5,00,000 | 5,00,000 12.05 15.38 2. Non-current liabilities ‘Long-term borrowings | 6.00.00 | 5,00,000 14.46 15.38 3. Current Habilities ‘Trade payables 15,50,000 |_10,50,000 37.35 32.31 Total [41,50,000 [32,50,000 100 100 II. Assets 1. Non-current assets a) Fixed assets - Tangible asset Plant & machinery 33.73 24.62 = Intangible assets Goodwill 98.55 36.92 ‘Non-current investments 24.10 30.77 2. Currentassets Inventories, 3.62 7.69 Total 100 100 Do it yourself Prepare common size balance sheet of Raj Co. Ltd. as at March 31, 2014 and March 31, 2015 from the given information: Particulars 2015 2014 F- Equity and Liabilities Shareholders fund a) Share capital 20,00,000 | 15,00,000 1b) Reserve and surplus 8,00,000 | 4,00,000 2 Non-current abilities : Long-term borrowings 9,00,000 3. Current liabilities oe ‘Trade payables 3,00,000 | _2.00, Total 35, S00 £00,000 | 27,00,000-of Financial Statements if. Assets 1. Non-current assets a) Fixed assets - Tangible assets - Intangible assets b) Current assets - Inventories - Cash and cash equivalents Total 191