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B EXERCISES

E10-1B: (Horizontal analysis – Increase /Decrease Method)

Following is the comparative statement of financial position of SPINACH Company:

SPINACH COMPANY
Comparative Statement of Financial Position
December 31, 2021 and 2020
(in thousands of pesos)

Assets 2021 2020

Current Assets P 440 P 280
Plant Assets 675 520
Total Assets P1,115

Liabilities and Shareholders' Equity

Current Liabilities P 280 P 120
Long-term Debt 250 160
Ordinary Share 325 320
Accumulated Profits 260 200
Total liabilities and Shareholders' Equity P1,115 P 800

Instruction: Perform a horizontal analysis of SPINACH Company’s financial statement. Show the increases an
d decreases in each account in absolute peso values and percentages. Use the format provided.

SPINACH COMPANY
Comparative Statement of Financial Position
December 31, 2021 and 2020
(in thousands of pesos)

Year Increase (Decrease)

Assets 2021 2020 Amount %
Current Assets P 440 P 280 160 57.14
Plant Assets 675 520 155 29.81
Total Assets P1,115 P 800 315 39.38
Liabilities and Shareholders' Equity
Current Liabilities P 280 P 120 160 133.33
Long-term Debt 250 160 90 56.25
Ordinary Share 325 320 5 1.56
Accumulated Profits 260 200 60 30
Total liabilities and Shareholders' Equity P1,115 P 800 315 39.38
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E10-2B: (Horizontal analysis – Trend Percentages)

RADDISH Company's sales and current assets have been reported as follows over the last four years:

Year 4 Year 3 Year 2 Year 1

Sales P800,000 P700,000 P600,000 P570,000
Net Income 94,880 92,050 74,400 68,400
Cash 35,000 30,000 24,000 18,000
Accounts Receivable 75,000 50,000 58,000 45,000
Inventory 78,000 75,000 80,000 75,000
Prepaid Expenses 47,000 39,000 11,000 25,000
Total Current Assets 235,000 194,000 173,000 163,000

Instruction:
A. Compute for the trend percentages of the selected data for RADDISH Company.

YEAR 4 YEAR 3 YEAR 2 YEAR 1

Sales 140.35 122.81 105.26 100
Net income 138.71 134.58 108.77 100
Cash 194.44 166.67 133.33 100
Accounts Receivable 166.67 111.11 128.89 100
Inventory 104 100 106.67 100
Prepaid expenses 188 156 44 100
Total current assets 144.17 119.02 106.13 100

B. Compare the years’ results and make an evaluation on which is the best year. Explain your
answer.
All percentages shown in the table are relative to the base year, which is fiscal of year 1. Notice
that the increase in operating income of 38.71 percent from year 1 to year 4 also the sales of
raddish company increase by 40.35 percent from year 1 to year 4. For me the best year is the year
3 because the sales and net income have a big gap in the previous year and other year.
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E10-3B: (Vertical Analysis)

Following is the comparative income statement of CABBAGE Company:

Cabbage Company
Income Statement
For the years ended December 31, 2021 and 2020

2021 2020
Net sales P 800,000 P 700,000
Cost of goods sold (350,000) (320,000)
Gross profit P 450,000 P 380,000
Selling expenses (P150,000 (P110,000)
)
Administrative expenses (37,000) (20,000)
Total operating expenses (P187,000 (P130,000)
)
Income before income tax P 263,000 P 250,000
Income tax (40,000) (32,000)
Net income P 223,000 P 218,000

Instruction: Perform a vertical analysis on the financial statements of Cabbage Company. Convert all income
statement accounts to common units, using net sales as the base. Use the format provided.

Cabbage Company
Income Statement
For the years ended December 31, 2021 and 2020

2021 2020
Amount Percent Amount Percent
Net sales P 800,000 100 P 700,000 100
Cost of goods sold (350,000) 43.75 (320,000) 45.71
Gross profit P 450,000 56.25 P 380,000 54.29
Selling expenses (P150,000) 18.75 (P110,000) 15.71
Administrative expenses (37,000) 4.63 (20,000) 2.86
Total operating expenses (P187,000) 23.38 (P130,000) 18.57
Income before income tax P 263,000 32.88 P 250,000 35.71
Income tax (40,000) 5 (32,000) 4.57
Net income P 223,000 27.88 P 218,000 31.14