The Common Size Balance Sheet
Chapter Twenty-One
Syllabus topic 4, "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 54 to 56 of 162
In one line
A common size balance sheet expresses every item as a percentage of the statement's own total, so that the financial structure appears without regard to size.
The formula and the base
Common size percentage = (the item / the total of the statement) x 100
Which total? It depends on the form.
| Form used | Base taken as 100 |
|---|---|
| Vertical form | Capital employed, and both halves come to 100 |
| Two-sided form | The balance sheet total, and both sides come to 100 |
This paper uses the vertical form throughout, so capital employed is the base. Say which base you used in one line above the statement, because both are correct and the reader must know which.
The statement
Sunrise Industries Ltd Common size balance sheet as at 31 March 2026 and 31 March 2027, on capital employed = 100
| Particulars | 2026, Rs | 2026, per cent | 2027, Rs | 2027, per cent |
|---|---|---|---|---|
| SOURCES OF FUNDS | ||||
| Equity share capital | 10,00,000 | 57.47 | 10,00,000 | 52.63 |
| 9 per cent preference share capital | 2,00,000 | 11.49 | 2,00,000 | 10.53 |
| Reserves and surplus | 1,40,000 | 8.05 | 3,00,000 | 15.79 |
| Proprietors' funds | 13,40,000 | 77.01 | 15,00,000 | 78.95 |
| 10 per cent debentures | 4,00,000 | 22.99 | 4,00,000 | 21.05 |
| CAPITAL EMPLOYED | 17,40,000 | 100.00 | 19,00,000 | 100.00 |
| Particulars | 2026, Rs | 2026, per cent | 2027, Rs | 2027, per cent |
|---|---|---|---|---|
| APPLICATION OF FUNDS | ||||
| Fixed assets, net | 13,00,000 | 74.71 | 14,00,000 | 73.68 |
| Non-current investments | 1,00,000 | 5.75 | 1,00,000 | 5.26 |
| Working capital | 3,40,000 | 19.54 | 4,00,000 | 21.06 |
| CAPITAL EMPLOYED | 17,40,000 | 100.00 | 19,00,000 | 100.00 |
Specimen working.
| Reserves, 2027 | 3,00,000 over 19,00,000 times 100 = 15.79 |
| Fixed assets, 2026 | 13,00,000 over 17,40,000 times 100 = 74.71 |
The 2027 application column shows 21.06 rather than 21.05 for working capital, because the three percentages are rounded to two decimals and their exact sum is 100.00. Force the last item to make the column come to 100 and say you have done so; a column of percentages that does not total 100 looks like an error even when every figure in it is correctly rounded.
The interpretation
Two findings, one from each half.
The financial structure has shifted towards the owners. Proprietors' funds rose from 77.01 to 78.95 per cent of the capital employed and debentures fell from 22.99 to 21.05, although the debentures did not change by a single rupee. The company grew, the borrowing did not, so the borrowing is a smaller share of a bigger whole. The business is less geared and safer for a lender than it was.
And within the owners' half the composition changed. Share capital fell from 57.47 to 52.63 per cent and reserves rose from 8.05 to 15.79. Reserves nearly doubled as a proportion of capital employed, which is the same finding the comparative balance sheet gave in rupees, and it says the growth was self-financed.
The rest of this chapter
Module one is free. The rest of this chapter comes with the B.Com. (Accountancy) Semester 3 notes.
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Free either way: the syllabus, and module one of every subject.
The rest of this subject
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