From the following information, prepare a Common size Income Statement for the year ended March 31, 2016 and March 31, 2017:
| Particulars | 2016-17 (₹) | 2015-16 (₹) |
|---|---|---|
| Revenue from operations | 18,00,000 | 25,00,000 |
| Cost of goods sold | 10,00,000 | 12,00,000 |
| Operating expenses | 80,000 | 1,20,000 |
| Non-operating expenses | 12,000 | 15,000 |
| Depreciation | 20,000 | 40,000 |
| Wages | 10,000 | 20,000 |
(Wages are part of the cost of goods sold; depreciation is part of the operating expenses.)
Take revenue from operations as 100% and express every item as a percentage of it. Gross Profit = Revenue − Cost of goods sold; Operating Income = Gross Profit − Operating expenses; Profit = Operating Income − Non-operating expenses. The profit margin falls from 46.60% (2015-16) to 39.33% (2016-17).
Concept
A common size statement (a vertical-analysis tool in the NCERT Class 12 Accountancy syllabus) expresses each item as a percentage of a common base — for an income statement the base is revenue from operations = 100%. It strips out the effect of size so you can compare the cost structure across years or across firms.
Working Notes
- Wages (₹20,000 / ₹10,000) are part of cost of goods sold — not shown separately.
- Depreciation (₹40,000 / ₹20,000) is part of operating expenses — not shown separately.
- Each percentage = item ÷ revenue from operations × 100 (e.g. 2016-17 cost of goods sold = 10,00,000 ÷ 18,00,000 × 100 = 55.56%).
Solution
Common Size Income Statement for the years ended March 31, 2016 and March 31, 2017
| Particulars | 2015-16 (₹) | 2016-17 (₹) | 2015-16 (% of Revenue) | 2016-17 (% of Revenue) |
|---|---|---|---|---|
| Revenue from operations | 25,00,000 | 18,00,000 | 100 | 100 |
| Less: Cost of goods sold | 12,00,000 | 10,00,000 | 48 | 55.56 |
| Gross Profit | 13,00,000 | 8,00,000 | 52 | 44.44 |
| Less: Operating expenses | 1,20,000 | 80,000 | 4.80 | 4.44 |
| Operating Income | 11,80,000 | 7,20,000 | 47.20 | 40 |
| Less: Non-operating expenses | 15,000 | 12,000 | 0.60 | 0.67 |
| Profit | 11,65,000 | 7,08,000 | 46.60 | 39.33 |
Cost of goods sold rose from 48% to 55.56% of revenue, dragging gross profit down from 52% to 44.44% and the overall profit margin from 46.60% to 39.33% — a clear deterioration in the cost structure that common size analysis brings out.
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