CERTIFICATE

This is to certify that Miss. Kumkum khandelwal of Class

XII – B3 of St. Joseph and Mary’s School, Kolkata, has
completed his project file under my supervision. He has
taken proper care and shown utmost sincerity in
completion of this project.
I certify that this project is up to my expectation and as
per the guidelines issued by ISC.
Mr. Subimal Ghosh Dastider,
(Head of the Commerce Department)
 ACCOUNTS
PROJECT
NAME – KUMKUM
KHANDELWAL
CLASS – XII
SECTION – B3
ROLL NO –18
Project 1
TOPIC

Comparative and
common size balance
sheet and income
statement
 ACKNOWLEDGEM
ENT
I would like to express my special thanks of
gratitude to my accounts teachers and to our
principal sir Dr. Bhakta Sundar Sharma who
gaveme the golden opportunity, to do this
wonderful project on the topiccomparative
and common size balance sheet and income
statement, which also helped me in doing a lot
of research and I came to know about so many
new things I am really thankful to them.
Secondly, I would also like to thank my
parents and friends who helped me a lot in
finalizing this project within the limited time
frame.
Thank you
Introduction
“Financial statement analysis is largely a study of relationships among
the various financial factors in a business, as disclosed by a single set
of statements, and a study of trends of these factors as shown in a
series of statements.”

Financial statements are used by various interested groups for various

purposes. Financial analysis serves the following purposes and that
brings out the significance of such analysis:

1. Assessing the earning capacity or profitability: On the

basis of financial analysis, earning capacity of the enterprise can
be assessed or computed. In addition, earning capacity of the
enterprise in coming years may also be forecast. All the external
users of financial statements especially the investors and potential
investorsare interested in earning capacity and forecast.

2. Inter firm comparison:Inter firm comparison becomes

easy with the help of financial analysis. It helps in assessing own
performance as well as that of others, if mergers and acquisitions
are to be considered.
3. Forecasting and preparing budgets: Past financial
statement analysis helps in assessing developments in future,
especially in the next year.

4. Understandable: Financial analysis helps the users of the

financial statements to understand the complicated matter in
simplified manner. Financial data can be made more
comprehensive by charts, graphs and diagrams, which can be
easily explained and understood.
There are some limitations of financial analysis:
1. Historical analysis: Financial statement analysis is an analysis of
historical or past data. It analyses what has happened in past. It
does not reflect the future. Persons like shareholders, investors
etc., are more interested in knowing the likely position in future.
2. Ignores price level changes: Price level changes and purchasing
power of money are inversely related. A change in the price level
makes analysis of financial statements of different accounting
years invalid because accounting records ignore change in value
of money.
3. Qualitative aspect ignored: Since the financial statements are
confined to the monetary matters only, the qualitative aspects
like quality of management, quality of staff, public relations are
ignored while carrying out the analysis of financial statements.
4. Suffers from the limitations of financial statements: Analysis of
financial statements is based on the information given in the
financial statements. Hence, this analysis suffers from all such
limitations from which the financial statements suffer. Therefore,
unless the basic data given in the financial statements is reliable,
the conclusions derived on the basis of the analysis of this data
cannot be reliable.
TOOLS FOR ANALYSIS OF
FINANCIAL STATEMENTS
Financial statementsanalysed with the help of analytical tools using
financial statements of the same enterprise for earlier years or with
that of another enterprise. They may also be compared with the
industry standards. Commonly used tools for financial statement
analysis are:

1. Comparative statements: Comparative statements or comparative

financial statements mean a comparative study of individual items
or components of financial statements i.e., Balance sheet and
Statement of profit or loss of two or more years of the enterprise
itself.
2. Common size statements: Common size statements or common
size financial statements mean statements in whichindividual items
or components of financial statements of two or more years are
placed side by side and thereafter converted into percentage taking
a common base.
3. Cash flow statement: Cash flow statement is a statement showing
flow of cash and cash equivalents during the accounting period,
classified under operating activities, investing activities and
financial activities.
4. Ratio analysis: ratio is an arithmetical expression of relationship
between two related or interdependent items or components of
financial statements of an accounting period.
 Purposes or objectives 0f
comparative statements
1. Data presentation becomes simple and comparable :Comparative
statements or a comparative financial statement is a statement
having data for two or more years in a tabular form. Thus, it is a
simple presentation, understandable and also comparable. It helps
in drawing conclusions easily.

2. Comparison with other firms and industries: Comparative

statement helps in comparison of the enterprise’s performance
with that of other enterprises or with that of industry.

3. Key financial statistics:Comparative statement or comparative

financial statement is a guide to understand the movements of key
financial statistics.

4. Forecasting and planning:Analyzing the changes in financial data

of the previous year helps the management in forecasting and
planning.
 LIMITATIONS OF
COMPARITIVE
STATEMENTs
The limitations of comparative statements or comparative financial
statements are:

1. HISTORICAL RECORDS: It is an analysis of historical records,

i.e., analysis of past financial statements. It, at the most indicates
the trends of happenings in the past. It is not reflective of future,
which is more relevant.
2. Ignores qualitative factors: Financial statements are prepared
from the monetary information whereas qualitative factors like
manpower quality are ignored which have significant impact on the
business.
3. IGNORES PRICE LEVEL CHANGES: Business transactions and
events are recorded at historical cost. At the time of preparing the
comparative statement, value of money is not the same. Thus
when the value of money is does not remain the same, a
comparison may be meaningless.
4. Affected by personal judgment:Financial statements are prepared
on the basis of accounting concepts and conventions along with the
estimates. If the estimates are incorrect, the projections based on
comparative statement will not be reliable.
 Tools (techniques) for
comparison of financial
statements
Comparison and analysis of financial statements may be carried out
by using the following tools:

1. COMPARATIVE BALANCE SHEET:

“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
ADVANTAGES OF COMPARITIVE BALANCESHEET:
a) Comparative balance sheet is more useful than balance sheet as
it has data of two balance sheets which may be used in studying
the trends in enterprise.
b) In balance sheet the emphasis is on status, whereas in the
comparative balance sheet the emphasis is on change. In other
words, comparative balance sheet shows the reason for change
in financial position.
c) A balance sheet shows the balances of accounts after closing the
books at a certain date, whereas the comparative balance sheet
shows not only the balances of accounts as at different dates but
also the extent of their increase or decrease between these
dates.
2. Comparative income statement or comparative statement of
profit and loss: Statement of profit and loss or income statement
shows the financial performance, i.e., net profit earned or net loss
incurred by the company during the year. Comparative statement
of profit or loss is the horizontal analysis of statement of profit and
loss.

3. COMMON SIZE BALANCE SHEET:Common size balance

sheet is the vertical analysis of balance sheet in which total
amount of asset is taken as 100 and all other values of assets are
expressed as percentage of the total asset. Similarly each item in
liability is expressed as percentage of total amount of equity and
liabilities.

4. Common size income statement or common size statement of

profit and loss:Common size income statement is the vertical
analysis of income statement in which value of revenue from
operations is taken as 100 and values of other items of statement
of profit and loss are expressed as percentage of revenue from
operations.
BAR GRAPHS OF COMPARATIVE INCOME
STATEMENT
Absolute change in income (Rs in crores)
900
800
700
600
500
400
300
200
100
0
revenue from operations other income total income

Absolute change in profits (Rs in crores)

1200
800
400
0
-400
 Absolute change in expenses ( Rs in crores)
1500
1000
500
0
-500
-1000
-1500
-2000
-2500

Percentage change in income

9
8
7
6
5
4
3
2
1
0
REVENUE FROM OPERATIONS OTHER INCOME TOTAL INCOME
Percentage change in expenses
40
20
0
-20
-40
-60
-80
-100
-120
-140
-160

Percentage change in profit

50

-50

-100

-150

-200

-250

-300

-350

-400
Bar graph of common size income statement

Percentage of income in comparison to RFO in 2019 (31.03.2019)

120

100

80

60

40

20

0
Revenue from operation Other income Total income

Percentage of expenses in different uses in (31.03.2019) in

comparison to RFO
80
60
40
20
0
 Percentage of profit at different stages in comparison to
RFO (31.03.2019)
20
10
0
-10

Percentage of income in comparison to RFO in 2018

(31.03.2018)
120

100

80

60

40

20

0
Revenue from operation Other income Total income
Percentage of expenses in different uses (31.03.2018) in
comparison to RFO
90
70
50
30
10
-10

Percentage of profit at different stages in comparison to

RFO (31.03.2018)
20
10
0
-10
BAR GRAPH OF COMPARATIVE BALANCE
SHEET

ABSOLUTE CHANGE IN EQUITY AND LIABILITY

3000
2500
2000
1500
1000
500
0
-500

PERCENTAGE CHANGE IN EQUITY AND LIABILITY

80

60

40

20

-20

-40
 ABSOLUTE CHANGE IN CURRENT ASSETS AND NON
CURRENT ASSETS
1800
1400
1000
600
200
-200

PERCENTAGE CHANGE IN NON CURRENT ASSETS AND

CURRENT ASSETS
200
150
100
50
0
-50
-100

BAR GRAPH OF COMMON SIZE BALANCE

SHEET
 PERCENTAGE OF EQUITY AND LIABILITY IN COMPARISON TO EQUITY AND LIABILITY (31.03.2019)

45
40
35
30
25
20
15
10
5
0

PERCENTAGE OF EQUITY AND LIABILITY IN COMPARISON TO EQUITY AND LIABILITY(31.03.2019)

45
40
35
30
25
20
15
10
5
0
Percentage of assets in comparison to total assets (31.03.2019)
25
20
15
10
5
0

Percentage of assets in comparison to total assets (31.03.2018)

30
25
20
15
10
5
0

Conclusion
The financial statements have absolute amounts for asset, liability,
income, expenses and profit earned or loss incurred. Financial
statements in this form do not convey information on earning
capacity, capital etc. Thus, financial statements are analysed using
tools of analysis i.e., common size statement and comparative
statements etc.

Comparative financial statements are prepared are prepared for inter

firm and intra firm comparison. Comparative financial statement is a
tool of financial analysis that shows change in each item or
component of financial statement in absolute amount and in
percentage, taking the amounts for the previous accounting period as
the base.

On the other hand, common size statements are prepared to analyze

the change in each item of the statement as a percentage to a
common base, to determine the trend of different items of the
statement and to assess the efficiency.
 Bibliography
The pictures and information utilised in the project have been
extracted from the following sources:

1) Google images(http://www.google.com)

2) http://www.wikipedia.com

3) T.S. GREWAL’S Management Accounting (Section B) by

Sultan chand
 CONTENT
PARTICULARS PAGE
NO

1. Introduction 1-2

2. Tools for analysis of financial statement 3

3. Purpose or objectives of comparative 4

statements
4. Limitations of comparative statement 5

5. Tools(techniques) for comparison of 6-7

financial statements
6. Balance sheet and income statement of 8-10
Hindustan uniliver
7. Comparative balance sheet and bar graphs 11-13
of comparative balance sheet
8. Common size balance sheet and bar graph 14-16
of common size balance sheet
9. Comparative income statement and bar 17-20
graph of comparative income statement
10. Common size income statement and 21-24
bar graph of common size statement
11. Conclusion 25

12. Bibliography 26
Project2
 Introduction
Cash flow is movement of cash and cash equivalents, i.e. inflow and
outflow of cash and cash equivalents.

Cash flow statement is a statement that shows inflow and outflow of

cash and cash equivalents during the period under report as is
required by accounting standard-3, cash flow statement
recommended by the institute of chartered accountants of India and
notified under the companies Act 2013

Cash flow statement is prepared to show cash flow from transactions

during the period under report classified into:

1. Operating activities
2. Investing activities
3. Financing activities
 Objectives of cash
flow
The objectives of preparing cash flow statement are:

1. To show cash and cash equivalents generated, i.e., inflow under

each activityby the enterprise.
2. To show cash and cash equivalents used, i.e., outflow under each
activity by the enterprise.
3. To show net change in cash and cash equivalents, i.e., the
difference between inflow and outflow under the three activities
between the two balance sheet dates.

Limitations of cash
flow
 In spite of various uses of cash flow statement, it has the following
limitations:
1. Non cash transactions are not prepared:cash flow statement
shows only inflows and outflows of cash and cash equivalents. It
does not show non cash transactions such as purchase of building
by the issue of shares or debentures to the vendors or issue of
bonus shares. This limitation can be overcome by disclosing it as a
footnote to cash flow statement.

2. Not a substitute for income statement:An Income Statement shows

both cash and non-cash items. Income Statement shows the net
income of the firm whereas Cash Flow shows net inflow or outflow
of cash and cash equivalents which is not net profit or loss of the
enterprise.
3. Historical in Nature:It rearranges the existing information
available in the Income Statement and the Balance Sheet. It
becomes more useful if it is accompanied by the projected Cash
Flow Statement.
 Importance and uses
of Cash Flow
Statement
1. Short term Planning: -Cash Flow Statement shows sources and
applications of Cash and Cash Equivalents for a period. It helps to plan
investment, operating and financing needs of an enterprise.
2. Cash Flow helps in understanding Liquidity and
solvency:Solvency means ability of an enterprise to meet its liabilities
as they become due. Quarterly or monthly, Cash Flow Statement
helps to ascertain liquidity better. Financial institutions, like banks,
mostly prefer Cash Flow Statement to assess whether the enterprise
will be in a position to pay interest and principal in time.
3. Efficient Cash Management:Cash Flow Statement provides
information on surplus or deficit of cash. An enterprise, therefore, can
plan short-term investment of the surplus and can arrange the short-
term credit in case of deficit.
4. Comparative Study: A comparison of the Cash Flow Statement for
the year with the budget indicates the extent to which cash generated
and applied met the plan. It is, useful for the managements to prepare
the budgets.
5. Reasons for Cash Position:Cash Flow Statement explains the
reasons for lower and higher cash balances with the enterprise.
Sometimes, an enterprise has lower cash balance in spite of higher
profits or has higher cash balance in spite of lower profits. Reasons for
such situations can be analyzed with the help of the Cash Flow
Statement.
6. Test for Management Decisions:It is a general rule that fixed assets
are purchased from the funds raised from long-term sources and
repay long-term debts out of profits. Cash Flow Statement shows
whether the cash inflow from operations has been used for the
purchase of fixed assets or whether these assets have been purchased
from the cash inflows from long-term funds. Similarly, it also explains
whether the debentures have been redeemed out of profits or not.
Thus, the Cash Flow Statement can be used to test the credibility of
the management decisions.
 Classification of
Activities
Accounting Standard-3 (Revised) requires Cash Flow Statement to be
prepared and presented in a manner that it shows cash flow business
transactions during a period classified into:-
1.Operating Activities: Operating Activities are the principal revenue-
producing activities that are not investing or financing activities.
Operating Activities being the principal revenue producing activities of
the enterprise, cash flow under the activity results from the
transactions and events that determine the net profit or loss. Cash
receipts from the sale of goods and rendering of services & Cash
payments to suppliers of goods and services are some of the examples
of Operating Activities.
2. Investing Activities: Investing Activities are the acquisition and
disposal of long-term assets and other investments not included in
cash equivalents. These activities include transactions involving the
purchase and sale of long-term assets like machinery, land and
building, long-term investments, etc., which are not for resale. Some
of the examples are:(I) Payments for purchase of fixed assets
(including intangibles);
(II) Receipts from disposal of fixed assets (including intangibles).
3. Financing Activities:Financing Activities are the activities which
result in change in the size and composition of the owners’ capital and
borrowings of the enterprise from other sources.Some of the
examples are: (i) Increase in Share Capital; (ii) Redemption of
Preference Share.
Question:-
From the following imaginary Balance Sheet and additional
information, prepare Cash Flow Statement and interprets the
results thereof.
Balance Sheet of akp ltd
As at 31st March 2013-2014

Particulars Note No. 31st March, 31st March,

2013 (in ) 2014 (in )
I.EQUITY AND LIABILITIES      
1. Shareholders’ Funds
(a) Share Capital 2,00,000 2,50,000
(b) Reserves and Surplus 1 80,500 90,600
2. Non-Current Liabilities
Long-term Borrowings 70,000 --------
3. Current Liabilities
(a) Trade Payables 1,50,000 1,35,000
2 30,000 35,000
(b) Short-term Provisions(Provisions for Tax)
Total 5,30,000 5,10,000
II. ASSETS
1. Non-Current Assets
Fixed Assets:
(a) Tangible 3,50,000 3,59,000
(b) Intangible(Goodwill) -------- 5,000
2. Current Assets
(a) Inventories 1,00,000 74,000
(b) Trade Receivables 80,000 64,000
(c) Cash and Cash Equivalents 3 500 8,000
Total
5,30,000 5,10,000
 

Notes to Accounts
Particulars 31st March, 31st March,
2013 (in ) 2014 (in )
1. Reserves and Surplus
General Reserve 50,000 60,000
Balance-Statement of Profit and Loss 30,500 30,600
80,500 90,600
2. Fixed Assets(Tangible)
 Land and Building 2,00,000 1,90,000
Plant and Machinery 1,50,000 1,69,000
3,50,000 3,59,000
3. Cash and Cash Equivalents
Cash 500 600
Bank -------- 8,000
Total 500 8,600

Additional Information:-
(1)Dividend of 23,000 was paid.
(2) Income Tax paid during the year 28,000.
(3) Machinery was purchased during the year 33,000.
(4) Depreciation written off on Machinery 14,000;
(5) Building was to be depreciated by 10,000.
Solution:-
A.K.P. Ltd.
CASH FLOW STATEMENT for the year ended 31St March, 2013

Particulars
I. Cash Flow from Operating Activities
Net Profit (Rs. 30,600 - Rs. 30,500) 100
Add: General Reserve 10,000
Provision for Tax 33,000
Dividend Paid 23,000
Net Profit before Taxation 66,100
Add: Depreciation on Plant and Machinery 14,000
Depreciation on Building 10,000
Operating Profit before Working Capital Changes 85,100
Add: Increase in Current Liabilities and Decrease in Current
Assets: 26,000
Decrease in Inventories 16,000
Decrease in Trade Receivable
Less: Decrease in Current Liabilities and Increase in Current (15,000)
Assets: (28,000)
Decrease in Trade Payable 89,100
Less: Income Tax Paid
Net Cash from Operating Activities (33,000)
II. Cash Flow from Investing Activities (5,000)
Purchase of Machinery (38,000)
Purchase of Goodwill
Net Cash Used in InvestingActivities 50,000
III. Cash Flow from Financing Activities (23,000)
Cash Proceeds from Issue of Equity Shares (70,000)
(43,000)
Dividend Paid
Redemption of Debenture 8,100
Net Cash Used in Financing Activities 500
IV. Net increase in Cash and Cash Equivalents (I+II+III) 8,600
V. Add: Opening Cash and Cash Equivalents
VI. Closing Cash and Cash Equivalents (IV+V)
WORKING NOTES

1. Proposed Dividend
Dr. Cr.
Particulars Rs. Particulars Rs.
To Bank (paid) 23000 By P/L (proposed) 23000
  23000   23000

2. Provision for Tax A/c.

Dr. Cr.
Particulars Rs. Particulars Rs.
To Bank (paid) 28000 By Balance B/d 30000
By P/L New Provision (Bal.
To Balance C/d 35000 Fig.) 33000
  63000   63000

3. Machinery A/c.
Dr. Cr.
Particulars Rs. Particulars Rs.
To Balance B/d 150000 By Depreciation (P/L) 14000
To Bank (Purchases) 33000 By Balance C/d 169000
  183000   183000

4. Land and Building

Dr. Cr.
Particulars Rs. Particulars Rs.
To Balance B/d 200000 By Depreciation (P/L) 10000
    By Balance C/d 190000
  200000   200000

5. 10% Debenture
Dr. Cr.
Particulars Rs. Particulars Rs.
To Bank (paid) 70000 By Balance B/d 70000
  70000   70000
 Pie chart and bar graph of cash flow statement

Cash from
Financing
Activities
26%
Cash from
Operating
Activities
Cash from 50%
Investing Activities
23%

100000

80000

60000

40000

20000 Column1

0
OPERATING ACTIVITY INVESTING ACTIVITY FINANCING ACTIVITY
-20000

-40000

-60000