There are two basic financial statements—viz. Income Statement and Balance Sheet. An income statement shows the net results of the business operations during an accounting period. A balance sheet is a statement of assets and liabilities indicating the financial position of an enterprise at a given date.
Meaning and purpose of comparative financial statements
Comparative financial statements refer to financial statements of different enterprises for the same accounting year, and successive accounting periods. They may refer to financial statements of an enterprise for two or more consecutive years.
These statements are prepared to study the magnitude, and direction of changes in enterprises financial position and performance. These statements are helpful in findings weaknesses and strengths of the business relating to solvency, profitability, liquidity, etc.
comparative balance Sheet
A comparative balance sheet contains the following information:
1. First column is for particulars.
2. Second column is for previous year’s balance sheet.
3. Third column is for current year’s balance.
4. Fourth column is for absolute changes.
5. Fifth column is for proportionate changes.
Format of Comparative
Balance Sheet
Particulars Previous Current Absolute Propor-
Year Year change tionate
Rs. Rs. Rs. change (3-2) (4×100)
2
1 2 3 4 5
(i) Fixed
Assets
(ii) Investments
(iii) Working
Capital
(Current Assets)
Less Current
Liabilities)
(iv) Capital
Employed
(i) + (ii) + (iii)
(v) Less Long
Term Debts (e.g.
debentures)
Particulars Previous Current Absolute Propor-
Year Year change tionate
Rs. Rs. Rs. change (3-2) (4×100)
2
1 2 3 4 5
(vi) Share
holder’s
Funds (iii-iv) — — —
Represented by
(vii) Equity
Share Capital
(viii) Preference
Share Capital
(ix) Net
Reserves &
Surplus — — —
Proparation of comparative income statement
A comparative income statement contains the following information :
(i) First column contains particulars.
(ii) Second column contains previous year’s income statement.
(iii) Third column contains current year’s income statement.
(iv) Fourth column contains absolute change.
(v) Fifth column shows propor-tionate change.
Format of Comparative
Income Statement for the yeaer Ending—
1 2 3 4 5
Particulars Last Current Absolute Propor-
year’s year’s change tionate
infor- infor- (2-3) change
matian matian
(i) Net Sales — —
(ii) Less Cost of — — — —
Goods Sold — — — —
(iii) Gross Profit — — — —
(i-ii)
(iv) Less
Operating — — — —
Expenses, Office — — — —
& admn. Exps.,
Selling
1 2 3 4 5
Particulars Last Current Absolute Proporti-
year’s year’s change onate
infor- infor- (2-3) change
& Dist.
Expenses
(v) Operating — — — —
Profit (iii-iv) — — — —
(vi) Add non-
operating
Income — — — —
(vii) Less Non-
operating
Expenses — — — —
(viii) (v + vi-vii)
Net Profit
before Tax
(ix) Less : Tax
(x) Net Profit
After Tax
(viii-ix)
common size statement
These statements comprise follow-ing items :
(i) Absolute amounts of individual items of balance sheet profit & loss account for two or more successive years.
(ii) Percentage to some common base. Usually, net sales is taken as base to profit and loss account items and the total of liabilities and assets taken as base to the balance sheet of items.
These statements are helpful in vertical analysis as each accounting period is analysed vertically. This kind of analysis shows the static relationship because the relative changes are studied at a stipulated date.
Trend percentage analysis
These analysis are time series to ascertain the trend of financial information for a number of years. This process involves the following steps :
(i) Selection of a base year.
(ii) Assignment of an index number of 100 to each item of the base year. (iii) Finding percentage relation-ship that each item bears to the same item in the base year.
Absolute money figures
Successive balance sheets and income statements may be prepared showing only money figures in terms of rupees. Such absolute figures provide only broad basis of comparison for several years indicating the trend of change in particular direction. The major draw back of such analysis is that figures fail to discloses the relative changes over a period of time between two or more business units.
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