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# Comparative Balance Sheet: Objectives, Advantages and Format of Comparative Balance Sheet

For the estimation of an organisation’s future progress, it is essential to look into its past performance, for which performing a comparative study of two or more years of company financial statements becomes necessary. A statement that helps in the comparative study of the components of a company’s balance sheet and income statement over a period of two or more years, both in absolute and percentage form, is known as a Comparative Statement. It is a horizontal type of analysis and not only provides the absolute figures of various years, but also, the columns to indicate any increase or decrease in these figures from one year to another in absolute and in percentage form. One can form an opinion on the progress of an enterprise based on the comparative statements.

### What is Comparative Balance Sheet?

A technique of comparing financial statements through which the balance sheet of a company is analysed by comparing its Asset, and Equity and Liabilities for two or more two accounting periods is known as Comparative Balance Sheet. It is a horizontal analysis of Balance Sheet, and with this tool, every item of Assets, and Equity and Liabilities is analysed for two or more accounting periods. This analysis can help in forming an opinion regarding the progress of the enterprise.

Comparative Balance Sheet analysis is the study of the trend of the same items, group of items, and computed items in two or more Balance Sheets of the same business enterprise on different dates.

-Foulka

### Objectives of Comparative Balance Sheet:

Different objectives of a comparative balance sheet are as follows:

1. The basic objective of a comparative balance sheet is to analyse every item of Assets, and Equity and Liabilities of two or more accounting years.

2. It is also prepared to analyse an increase or decrease in every item of Equity and Liabilities, and Assets in terms of percentage and rupees, and also to determine the trend and effect of each item.

3. Lastly, it is prepared to analyse and determine the reasons for any change in financial position.

### Advantages of Comparative Balance Sheet:

1. More Realistic Approach: A Balance Sheet only shows the balances of Assets, and Equity and Liabilities of a company after closing the books of accounts at a certain date. However, a Comparative Balance Sheet not only shows the balances of Assets, and Equity and Liabilities at a certain date, but also the extent to which those figures have increased or decreased between these dates.

2. Emphasis on Changes: A Balance Sheet emphasises on the status of the company; however, a Comparative Balance Sheet emphasises on the change.

3. Reflects Trend: A Comparative Balance Sheet allows the user to study the nature, size, and trend of change in various items of a Balance Sheet. Therefore, it is more useful than a Balance Sheet of a single year.

4. Link between Balance Sheet and Statement of Profit & Loss: A Comparative Balance Sheet acts as a link between the Balance Sheet and Statement of Profit & Loss of a company as it shows the effects of business operations on its Assets, and Equity and Liabilities.

5. Facilitates Planning: A Comparative Balance Sheet helps an organisation in determining the trends of its growth or decrease in the value of its Assets, and Equity and Liabilities. The trends ultimately help in planning the future course of action of the firm.

### Preparation of Comparative Balance Sheet:

A Comparative Balance Sheet has the following six columns:

1. First Column: In the first column, the components or items, or elements of the Balance Sheet are recorded.

2. Second Column: In the second column, Note No. given against the line item is Balance Sheet is recorded.

3. Third Column: In this column, the amounts of the previous year are recorded.

4. Fourth Column: In this column, the amounts of the current year are recorded.

5. Fifth Column: In the fifth column, the difference (increase or decrease) in amounts between the current and previous year are shown.

6. Sixth Column: In the last column, the difference of amount in the previous column is expressed in percentage form by taking Column 3 as the base. The amount of the sixth column can be determined with the help of the following formula:

### Format of Comparative Balance Sheet:

*Schedule III of the Companies Act 2013, is amended. And according to this, “Property, Plant and Equipment, and Intangible Assets” is used in place of Fixed Assets, and “Property, Plant and Equipment” is used in place of Tangible Assets.

Notes:

1. If the current year’s value of a company has decreased, then show the Absolute Change and Percentage Change in brackets to reflect the negative item.

2. Accounting treatment or entries related to items like Money received against Share Warrants, Application Money Pending Allotment, Deferred Tax Assets, etc., will not be asked in the examination.

#### Illustration:

Prepare a Comparative Balance Sheet of Vanshika Ltd., from the following Balance Sheet as on 31st March 2019:

#### Solution:

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