Question

From the following information, prepare a Comparative as well as Common-size Statement of Profit & Loss of Victor Ltd.:

Particulars	Note No.	31.3.2020	31.3.2019
Revenue from Operations		36,00,000	30,00,000
Cost of Materials Consumed		28,00,000	22,00,000
Other Expenses		12% of Materials Consumed	10% of Materials Consumed
Income Tax		50%	40%

Answer 1

VICTOR LTD.
COMPARATIVE STATEMENT OF PROFIT & LOSS
for the year ended 31st March 2020 and 2019
Particulars		Note No.	2019-20 (₹)	2018-19 (₹)	Absolute Change (Increase/ Decrease)	% Increase/ Decrease
I.	Revenue from Operations		36,00,000	30,00,000	6,00,000	20.00
II.	Less: Expenses
	Cost of Materials Consumed		28,00,000	22,00,000	6,00,000	27.27
	Other Expenses		3,36,000	2,20,000	1,16,000	52.73
	Total Expenses		31,36,000	24,20,000	7,16,000	29.59
III.	Profit before Tax (I − II)		4,64,000	5,80,000	(1,16,000)	(20.00)
	Less: Tax		2,32,000	2,32,000	-	-
IV.	Profit after tax		2,32,000	3,48,000	(1,16,000)	(33.33)

     Comments: The analysis of the above comparative income statement gives the following information:

     In 2020, revenue from operations increased by ₹6,00,000 (20%), but the cost of materials consumed also increased by ₹6,00,000 (27.27%) and other expenses by ₹1,16,000 (52.73%), as a result of which the profit after tax declined by 1,16,000 (33.33%). This means that the increase in revenue from operations was relatively expensive in terms of the cost of material consumed and other expenses. This should be a cause of concern, and the management should thoroughly investigate the cause of the increase in the cost of material consumed and other expenses. Since there is an increase in the cost of raw materials consumed and other expenses, the sale prices must also be increased.

VICTOR LTD.
COMMON SIZE STATEMENT OF PROFIT & LOSS
for the year ended 31st March 2020 and 2019
Particulars		Note No.	Absolute Amounts		Percentage of Revenue from Operations
			2019-20 (₹)	2018-19 (₹)	2019-20 (%)	2018-19 (%)
I.	Revenue from Operations		36,00,000	30,00,000	100	100
II.	Less: Expenses
	Cost of Materials Consumed		28,00,000	22,00,000	77.78	73.34
	Other Expenses		3,36,000	2,20,000	9.33	7.33
	Total Expenses		31,36,000	24,20,000	87.11	80.67
III.	Profit before Tax (I − II)		4,64,000	5,80,000	12.89	19.33
	Less: Tax		2,32,000	2,32,000	6.44	7.73
IV.	Profit after Tax		2,32,000	3,48,000	6.44	11.60

     Comments: The Common-Size statement of profit & loss shows that the cost of materials consumed, which was 73.34% of revenue from operations in 2019, rose to 77.78% in 2020. Other expenses have also increased from 7.33% to 9.33%. As a result of this, and also due to an increase in income tax rate from 40% to 50%, net profit after tax, which was 11.6% of revenue from operations in 2019, declined to 6.44% in 2020. The company is advised to raise the selling price of its products to offset the increase in the cost of materials consumed and other expenses.