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Handout 2

The document discusses comparative analysis of balance sheets and constructing common size balance sheets. It provides an example balance sheet for Gokul Ltd for years 2004 and 2005. It then explains that a common size balance sheet expresses each item as a percentage of total assets to allow for comparison between firms. Finally, it provides the balance sheet for Byet Stores, Inc for years 2014 and 2015 and asks the reader to construct the common size balance sheet from this data.

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Xain Ali
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29 views

Handout 2

The document discusses comparative analysis of balance sheets and constructing common size balance sheets. It provides an example balance sheet for Gokul Ltd for years 2004 and 2005. It then explains that a common size balance sheet expresses each item as a percentage of total assets to allow for comparison between firms. Finally, it provides the balance sheet for Byet Stores, Inc for years 2014 and 2015 and asks the reader to construct the common size balance sheet from this data.

Uploaded by

Xain Ali
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 5

HAND OUT # 02:

FINANCIAL & ACCOUNTING MANAGEMENT

Dr. KASHIF NOOR (ASSIST. PROFESSOR)

MECHANICAL ENGINEERING DEPARTMENT

Comparative analysis of Balance sheet:

Balance sheet as on two or more different dates are used for comparing the assets, liabilities and the net worth of the
company. Comparative balance sheet is useful for studying the trends of an undertaking. Comparative statement can
also be used to compare the performance of the firm with the average performance of the industry or inter-firm
comparison .This helps in identification of the weaknesses of the firm and remedial measures can be taken
accordingly.

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Q Make the comparative balance sheet for Gokul Ltd , balance sheet is:

Gokul Ltd balance sheet for the years ending 31st March ,2004,2005 (Rs)
2004 2005
Assets

Current assets
Cash at bank 40000 53000
Cash in hand 10000 30000
Bill receivable 20000 60000
Prepaid expense 10000 12000
Stock 140000 175000
Total current assets 220,000 330,000

Fixed Assets (Less:Depreciation) 240,000 350,000

Total Asset 460,000 680,000

Claims on asset

Current liabilities
Bank overdraft 50,000 50,000
Creditors 40000 50000
Provision for taxes 20000 25000
Proposed dividend 15000 25000
Total liabilities 125,000 150,000

Capital and reserves


Equity share capital 300,000 480,000
Reserves 20000 30000
Profit and loss account 15000 20000
Total stock holders equity 335,000 530,000

Total claims 460,000 680,000

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Common Size balance sheet :
In common size balance sheet , the total of asset side or liabilities side is taken
as 100 and all figures of assets and liabilities , capital and reserves are
expressed as a portion to the total i.e;100

In a common size balance sheet ,each item is calculated as a percentage of


total assets

The common size balance sheet reveals the proportion of fixed assets to current
assets , composition of fixed assets and current assets , proportion of long term
funds to current liabilities and provisions, composition of current liabilities etc.

It also help in making inter-firm comparison and highlights the financial health
and long-term solvency, ability to meet short obligations and liquidity position
of the enterprise.

Question : The following are the balance sheet of Byet stores ,inc for the
years ending 31st Dec 2014 and 31st Dec 2015. Construct the common size
balance sheet?

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Byet stores ,inc balance sheet (thousand of dollars)

Dec 31 2014 31-Dec-13


Assets

Current assets
Cash $43 $40
Net accounts receivable 96 89
Inventories 111 92
Prepaid expense 7 9
Total current assets $257 $230

Long term assets


Gross plant and equipment 85 63
Less : Accumulated Depreciation -26 -22
Net plant and equipment 59 41

Total assets $316 $271

Claims on asset

Current liabilities
Accounts payable $77 $63
Notes payable -Bank 31 46
Taxes pay able 3 3
other accruals 24 21
Total current liabilities $135 $133

Long term liabilities


Bonds outstanding $49 33
Deffered taxes 12 10
Total long term liabilities $61 43

Stock holder's equity


common stock $38 $38
Additional paid in capital 9 9
Retained earning 73 48
Total stock holders equity $120 $95

Total claims $316 $271

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