Practice Questions: Tools of Analysis
Chapter Twenty-Four
Syllabus topic 2, 3, 4, 6, "Problems on Trend Analysis , Comparative Statements and Common Size Statements with use of Annual Reports"; "Trend Analysis – Concept, selection of base year, computation of trend percentages and interpretation of trends in sales, profits, assets, liabilities and shareholders’ funds."; "Comparative Financial Statements – Preparation and analysis of Comparative Income Statement and Comparative Balance Sheet, calculation of absolute and percentage changes, and interpretation of financial performance and position."; "Common Size Financial Statements – Preparation and analysis of Common Size Income Statement and Common Size Balance Sheet, conversion of financial statement items into percentages, and interpretation of financial structure and profitability."
Pages 63 to 66 of 162
Question 1 (15 marks)
The revenue statements of Meghna Ltd for two years are given below.
| Particulars | 2026, Rs | 2027, Rs |
|---|---|---|
| Net sales | 12,00,000 | 15,00,000 |
| Less: cost of goods sold | 8,40,000 | 10,80,000 |
| Gross profit | 3,60,000 | 4,20,000 |
| Less: administrative expenses | 60,000 | 66,000 |
| Less: selling and distribution expenses | 90,000 | 1,20,000 |
| Operating profit | 2,10,000 | 2,34,000 |
| Add: non-operating income | 20,000 | 26,000 |
| Profit before interest and tax | 2,30,000 | 2,60,000 |
| Less: interest | 30,000 | 30,000 |
| Profit before tax | 2,00,000 | 2,30,000 |
| Less: provision for tax | 60,000 | 69,000 |
| Profit after tax | 1,40,000 | 1,61,000 |
(a) Prepare a comparative income statement and comment on the result. (9)
(b) Prepare a common size income statement and say what it adds to the comment in (a). (6)
---
Question 2 (10 + 5 marks)
(a) The following are the balance sheets of two companies in the same trade, already set in vertical form. Prepare a common size balance sheet on capital employed and compare the two companies. (10)
| Particulars | Ajay Ltd, Rs | Bijoy Ltd, Rs |
|---|---|---|
| Equity share capital | 8,00,000 | 15,00,000 |
| Preference share capital | nil | 5,00,000 |
| Reserves and surplus | 4,00,000 | 2,00,000 |
| Proprietors' funds | 12,00,000 | 22,00,000 |
| Long-term debt | 3,00,000 | 18,00,000 |
| Capital employed | 15,00,000 | 40,00,000 |
| Fixed assets | 10,00,000 | 32,00,000 |
| Investments | 50,000 | nil |
| Current assets | 6,50,000 | 14,00,000 |
| Less: current liabilities | 2,00,000 | 6,00,000 |
| Working capital | 4,50,000 | 8,00,000 |
(b) Give the four tests a base year must pass in trend analysis, and say what happens when a strike year is used as the base. (5)
---
Question 3 (8 + 7 marks)
(a) Compare trend analysis, the comparative statement and the common size statement as instruments for assessing profitability, liquidity and financial stability. (8)
(b) Answer in one or two sentences each: (7)
- On what figure is the percentage change in a comparative statement computed?
- On what figure is the percentage in a common size income statement computed?
- Cost of goods sold is not a line in a Schedule III statement. How is it built?
- Why does a common size statement show a fall in interest when the interest bill has not changed?
- Working capital rose and the current ratio fell. How?
- Name one thing a common size statement can never show.
- What must be checked before reporting a 100 per cent rise in an item?
---
Answers
Answer 1
(a) Meghna Ltd, comparative income statement for the years ended 31 March 2026 and 2027
| Particulars | 2026, Rs | 2027, Rs | Change, Rs | Change, per cent |
|---|---|---|---|---|
| Net sales | 12,00,000 | 15,00,000 | 3,00,000 | 25.00 |
| Less: cost of goods sold | 8,40,000 | 10,80,000 | 2,40,000 | 28.57 |
| Gross profit | 3,60,000 | 4,20,000 | 60,000 | 16.67 |
| Less: administrative expenses | 60,000 | 66,000 | 6,000 | 10.00 |
| Less: selling and distribution expenses | 90,000 | 1,20,000 | 30,000 | 33.33 |
| Total operating expenses | 1,50,000 | 1,86,000 | 36,000 | 24.00 |
| Operating profit | 2,10,000 | 2,34,000 | 24,000 | 11.43 |
| Add: non-operating income | 20,000 | 26,000 | 6,000 | 30.00 |
| Profit before interest and tax | 2,30,000 | 2,60,000 | 30,000 | 13.04 |
| Less: interest | 30,000 | 30,000 | nil | nil |
| Profit before tax | 2,00,000 | 2,30,000 | 30,000 | 15.00 |
| Less: provision for tax | 60,000 | 69,000 | 9,000 | 15.00 |
| Profit after tax | 1,40,000 | 1,61,000 | 21,000 | 15.00 |
The rest of this chapter
Module one is free. The rest of B.Com. (Accountancy) Semester 3 is part of the bundle.
You are reading a chapter from a later module. Everything in module one of every subject stays free, and so does the syllabus.
See the semester for ₹499 Already bought it? Sign in
Free either way: the syllabus, and module one of every subject.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.