# Common Size Income Statement: Objectives, Preparation, Format of Common Size Statement

Last Updated : 05 Apr, 2023

### What is a Common-size Financial Statement?

A Vertical Analysis of the Financial Statements of a company, in which the amount of individual items of a Balance Sheet of Statement of Profit & Loss are written is known as a Common-size Financial Statement. The amounts written are then converted into percentage by taking a common base; which is, Revenue from Operations or Net Sales in case of Statement of Profit & Loss and Total Assets or Total Equity and Liabilities in case of a Balance Sheet. The percentages calculated by taking the respective common bases are then compared with the corresponding percentages of other periods, through which meaningful conclusions can be drawn. A Common-size Statement can be prepared for inter-firm and intra-firm comparisons or for Balance Sheet and Income Statement.

Common-size Statements are accounting statements expressed in percentage of some base rather than rupees.

– Kohler

### Common Size Income Statement:

A statement that shows the percentage relation of each income/expense to the Revenue from Operations (Net Sales), is known as a Common-size Income Statement. To express the amounts as the percentage of the total, Revenue from Operations (Net Sales) is taken as 100. One may prepare a Common-size Statement of Profit & Loss (Income Statement) for different periods of the same firm or for the same period of different firms. With the help of the comparison between the Common-size Income Statements of different periods, one can understand the efficiency in earning revenues and incurring expenses.

### Objectives of Common Size Income Statement

Different objectives of a Common-size Income Statement are as follows:

1. The basic objective of a Common-size Income Statement is to analyse the change in individual terms of the Income Statement.

2. It is also prepared to study the trend in different items of Incomes and Expenses.

3. Lastly, it is prepared for the assessment of efficiency.

### Preparation of Common Size Income Statement

A Common-size Income Statement has the following six columns:

1. First Column: In the first column, the items of the Income Statement (Statement of Profit & Loss); i.e., revenue/income and expenses are recorded.

2. Second Column: In the second column, Note No. given against the item in the Income Statement of the company is recorded.

3. Third Column: In the third column, the amounts of the previous year are written in case the Common-size Statement for different periods of the same firm is being prepared. And if the Statement is being prepared for two different firms, then the amount relating to the first firm (say, X Ltd.) is recorded.

4. Fourth Column: In the fourth column, the amounts of the current year are written in case the Common-size Statement for different periods of the same firm is being prepared. And if the Statement is being prepared for two different firms, then the amount relating to the other firm (say, Y Ltd.) is recorded.

5. Fifth Column: In the fifth column, the percentage of different items of the Income Statement of the previous year or first firm (as the case may be) to Revenue from Operations; i.e., Net Sales (taken as 100) is recorded.

6. Sixth Column: In the sixth column, the percentage of different items of the Income Statement of the current year or any other firm (as the case may be) to Revenue from Operations; i.e., Net Sales (taken as 100) is recorded.

### Format of Common-size Income Statement (Statement of Profit & Loss):

#### Illustration:

From the following Income Statement, prepare Common-size Income Statement:

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