Question

Explain the procedure for preparing a common- size statement.

Answer 1

Common-size statements can be prepared with three columns. Following are the steps to be followed in the preparation of the common–size statement.

1. Column 1: In this column, the particulars of items of the income statement or balance sheet are written.
2. Column 2: Enter the absolute amount.
3. Column 3: Choose a common base as 100.

For example Revenue from operations can be taken as the base for income statement and total of the balance sheet can be taken as the base for the balance sheet. Work out the percentage for all the items of column 2 in terms of the common base and enter them in column 3.