The Comparative Income Statement
Chapter Eighteen
Syllabus topic 3, "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."
Pages 44 to 47 of 162
In one line
A comparative income statement sets two years side by side and adds two columns: what changed in rupees and what changed in per cent of the earlier year.
The formulae
Absolute change = current year figure less previous year figure
Percentage change = (absolute change / previous year figure) x 100
An increase is positive and a decrease is shown in brackets. Where the previous year's figure is nil, no percentage can be computed; write "not computable" and give the rupee change.
The statement
Sunrise Industries 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 | 16,00,000 | 20,00,000 | 4,00,000 | 25.00 |
| Less: cost of goods sold | 11,20,000 | 14,00,000 | 2,80,000 | 25.00 |
| Gross profit | 4,80,000 | 6,00,000 | 1,20,000 | 25.00 |
| Less: administrative expenses | 90,000 | 1,00,000 | 10,000 | 11.11 |
| Less: selling and distribution expenses | 1,10,000 | 1,40,000 | 30,000 | 27.27 |
| Total operating expenses | 2,00,000 | 2,40,000 | 40,000 | 20.00 |
| Operating profit | 2,80,000 | 3,60,000 | 80,000 | 28.57 |
| Add: non-operating income | 30,000 | 40,000 | 10,000 | 33.33 |
| Less: non-operating expenses | 10,000 | 20,000 | 10,000 | 100.00 |
| Profit before interest and tax | 3,00,000 | 3,80,000 | 80,000 | 26.67 |
| Less: interest | 40,000 | 40,000 | nil | nil |
| Profit before tax | 2,60,000 | 3,40,000 | 80,000 | 30.77 |
| Less: provision for tax | 78,000 | 1,02,000 | 24,000 | 30.77 |
| Profit after tax | 1,82,000 | 2,38,000 | 56,000 | 30.77 |
Specimen working.
| Gross profit change | 6,00,000 less 4,80,000 = 1,20,000 |
| Gross profit percentage | 1,20,000 over 4,80,000 times 100 = 25.00 |
| Selling expenses percentage | 30,000 over 1,10,000 times 100 = 27.27 |
The interpretation
Sales rose 25 per cent and so did the cost of goods sold, so the gross profit rose by exactly the same 25 per cent and the gross margin held at 30 per cent. The company grew without either gaining or losing on its trading margin.
Operating expenses rose only 20 per cent, slower than sales. That is the year's best feature: the overhead did not grow in proportion to the business, and it is why operating profit rose 28.57 per cent when sales rose 25.
But the two operating expenses moved differently and the average hides it. Administrative expenses rose 11.11 per cent, well under sales, which is proper for a largely fixed cost. Selling and distribution rose 27.27 per cent, faster than sales, which is not: a selling cost that outruns the sales it produced is a cost per rupee of sales that has gone up. That is the one item to question.
Non-operating expenses doubled, and a 100 per cent rise looks alarming until the rupee column is read: Rs 10,000 on a profit before tax of Rs 3,40,000. Report it, and say it is immaterial. This is exactly why the statement carries both columns.
Interest is unchanged, so no new borrowing was taken, and the whole of the extra profit before tax belongs to the shareholders.
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