AccountancyCBSE Class 12 · Analysis of Financial Statements

Common-size Statements Class 12: Common-size Balance Sheet and Statement of Profit and Loss

Updated 15 October 2026 · Fact-checked

A common-size statement expresses every item of a financial statement as a percentage of a common base: revenue from operations for the Statement of Profit and Loss, and the balance sheet total for the Balance Sheet. Because all figures become percentages, firms of different sizes, or one firm across years, can be compared directly. It is vertical analysis.

Dividing every item by revenue from operations makes firms of any size comparable, because each statement now totals 100%.

Illustration drawn for QuestionBuddy.

Understand Common-size Statements

What it is. A common-size statement converts rupee figures into percentages of a common base, so that the structure of the statement is clear at a glance. It is a tool of vertical analysis (within one year's statement).

Bases.

Common-size Statement of Profit and Loss: Revenue from operations = 100. Every other line (other income, each expense, PBT, tax, PAT) is a percentage of revenue from operations. Total income may exceed 100% when there is other income.
Common-size Balance Sheet: Total of the balance sheet = 100 (total equity and liabilities = total assets). Each major head and sub-head is a percentage of that total.

Columns. Particulars | Absolute amounts (year 1, year 2) | Percentage of base (year 1, year 2). Two years are often shown so that changes in structure can be compared.

Uses.

Inter-firm comparison: a small and a large firm can be compared because both are reduced to 100.
Intra-firm comparison: shows whether the cost structure or financing mix is shifting over years.
Highlights which items dominate (for example, material costs 60% of revenue).

Limitations. Percentages hide absolute size; a stable percentage can mask a large rupee change; no standard norms; different accounting policies between firms reduce comparability.

Comparative vs common-size. Comparative: across years, change and % change (horizontal). Common-size: within a year, % of a base (vertical).

Reading it. A rising expense percentage means that cost is growing faster than revenue; a falling PAT percentage means lower net margin; in the balance sheet, a rising percentage of borrowings means greater reliance on debt.

Common-size Statements: key facts

Common-size P&L percentage: Item ÷ Revenue from operations × 100
Common-size Balance Sheet percentage: Item ÷ Total of balance sheet × 100; Assets total and liabilities total both = 100.
PBT percentage check: Total income % − Total expenses % = PBT %
PAT percentage: PBT % × (1 − tax rate)

How to answer Common-size Statements questions

Common-size questions are mechanical; marks come from the right base, totals and neat rounding.

1Identify the base: revenue from operations (P&L) or balance sheet total (BS).
2Compute totals (total income, expenses, PBT, tax, PAT; or major heads) first.
3Divide each item by the base and multiply by 100; round to two decimals.
4Check: expense percentages add to total expenses %; assets and liabilities each total 100%.
5For two years, use each year's own base.
6Add a short interpretation if asked.

Common-size Statements in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Comparing firms of different sizes

Suppose two bookshops in your town, one small and one large, both claim to be careful with costs. The small shop pays rent of ₹50,000 on sales of ₹5,00,000; the large one pays ₹1,20,000 on sales of ₹20,00,000.

Which shop spends relatively more on rent?

Try it first, then show the solutionSolution

Small shop: 50,000 ÷ 5,00,000 × 100 = 10% of sales.
Large shop: 1,20,000 ÷ 20,00,000 × 100 = 6% of sales.
Rupee rent is higher for the large shop, but as a share of sales it is lower.

Answer: The small shop spends relatively more: 10% of sales against 6%. Common-size percentages make the two comparable despite their very different sizes.

Memory hook: Shrink both to 100 and the fair comparison appears.

Tricks to remember Common-size Statements

Short memory aids. Say each one aloud once, then use it on a question the same day.

Revenue for P&L, Total for BS
R for Revenue in the Results statement; T for Total in the balance sheet.
Use it when: Choosing the base.
Vertical = within one year
Common-size reads down a single year's column.
Use it when: Telling it apart from comparative statements.
105 − 75 = 30
Total income % minus expenses % gives PBT %; use it to check your work.
Use it when: Checking the P&L version.

Common-size Statements: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Base of the P&L version · 1 mark · MCQBoard level

In a Common-size Statement of Profit and Loss, the base taken as 100 is:
(a) total income
(b) revenue from operations
(c) total expenses
(d) profit before tax

Try it first, then show the solutionSolution

Every item is expressed as a percentage of revenue from operations.

Answer: (b) revenue from operations

Example 2: Common-size Statement of Profit and Loss · 3 marks · Short answerBoard level

Prepare a Common-size Statement of Profit and Loss: revenue from operations ₹20,00,000; other income ₹1,00,000; cost of materials consumed ₹10,00,000; employee benefits ₹3,00,000; other expenses ₹2,00,000; tax 30%. (3 marks)

Try it first, then show the solutionSolution

Revenue 100%; other income 5%; total income 21,00,000 = 105%.
Expenses: 50% + 15% + 10% = 75% (15,00,000).
PBT 6,00,000 = 30%; tax 1,80,000 = 9%; PAT 4,20,000 = 21%.

Answer: PBT 30% and PAT 21% of revenue from operations.

Example 3: Common-size Balance Sheet · 3 marks · Short answerHarder board level

Prepare a Common-size Balance Sheet: shareholders' funds ₹6,00,000; non-current liabilities ₹2,50,000; current liabilities ₹1,50,000; non-current assets ₹7,00,000; current assets ₹3,00,000. (3 marks)

Try it first, then show the solutionSolution

Total = ₹10,00,000 = 100%.
Shareholders' funds 60%; non-current liabilities 25%; current liabilities 15%.
Non-current assets 70%; current assets 30%.

Answer: Liabilities side 60 + 25 + 15 = 100%; assets side 70 + 30 = 100%.

Example 4: Two-year common-size comparison · 4 marks · Short answerHarder board level

Revenue from operations was ₹10,00,000 in year 1 and ₹12,00,000 in year 2; total expenses were ₹7,00,000 and ₹9,00,000. Show expenses and PBT as common-size percentages for both years and comment. (4 marks)

Try it first, then show the solutionSolution

Year 1: expenses 70%; PBT 30%.
Year 2: expenses 9,00,000 ÷ 12,00,000 = 75%; PBT 25%.
Revenue grew 20% but expenses grew about 28.6%.

Answer: Expenses rose from 70% to 75% of revenue, so the PBT margin fell from 30% to 25%; costs grew faster than sales.

Example 5: Working back from percentages · 4 marks · Short answerHOTS / competency

In a company's common-size Statement of Profit and Loss, total expenses are 80% of revenue from operations, there is no other income, tax is 40% of PBT, and PAT is 12% of revenue. If revenue from operations is ₹25,00,000, find total expenses, PBT, tax and PAT, and show that the percentages are consistent. (4 marks)

Try it first, then show the solutionSolution

PBT % = 100 − 80 = 20%: PBT = ₹5,00,000; expenses = ₹20,00,000.
Tax = 40% of 5,00,000 = ₹2,00,000 (8% of revenue).
PAT = ₹3,00,000 = 12% of revenue, matching the given figure.

Answer: Expenses ₹20,00,000; PBT ₹5,00,000; tax ₹2,00,000; PAT ₹3,00,000 (20% × 60% = 12%).

Example 6: Why common-size helps comparison · 1 mark · Assertion-reasonHOTS / competency

Assertion (A): Common-size statements help compare firms of different sizes.
Reason (R): All items are expressed as percentages of a common base.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.

Try it first, then show the solutionSolution

Reducing each firm to a base of 100 removes the effect of size. R explains A.

Answer: (a) Both A and R are true, and R is the correct explanation of A.

Where students lose marks in Common-size Statements

The slips examiners see most often, and what to write instead.

Mistake: Using total income as the P&L base
It looks like the 'total'.
Wrong working
Each item ÷ 21,00,000.
Right working
Each item ÷ 20,00,000 (revenue from operations).
Do this: Revenue from operations is the base.
Usually costs: Whole question.
Mistake: Using one year's base for both years
Saving time.
Wrong working
Year 2 items ÷ year 1 revenue.
Right working
Each year divided by its own revenue.
Do this: Each column has its own base.
Usually costs: 1-2 marks.
Mistake: Forgetting that total income can exceed 100%
Forcing the total to 100.
Wrong working
Total income 100%.
Right working
Revenue 100% + other income 5% = 105%.
Do this: Only revenue from operations is 100.
Usually costs: 1 mark.
Mistake: Taking total assets minus current liabilities as the BS base
Confusing with capital employed.
Wrong working
Base = 8,50,000.
Right working
Base = balance sheet total 10,00,000.
Do this: Use the full total.
Usually costs: Whole question.

Exam tips

Write 'Base: Revenue from operations = 100' at the top of your answer.
Show absolute figures alongside percentages; examiners give marks for both.
Round to two decimals and check the totals add up.
A 3-mark common-size or comparative statement is a regular Part B Option I item.

Practice questions on Common-size Statements

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
In a Common-size Balance Sheet, the base is:
(a) shareholders' funds
(b) total of the balance sheet
(c) current assets
(d) capital employed
Hint
Total assets = total liabilities.
Answer
(b) total of the balance sheet
Q2 · 1 mark · MCQBoard level
Common-size statements are a tool of:
(a) horizontal analysis
(b) vertical analysis
(c) trend analysis
(d) cash flow analysis
Hint
Within one year.
Answer
(b) vertical analysis
Q3 · 3 marks · Short answerBoard level
Revenue from operations is ₹5,00,000, cost of materials consumed ₹3,00,000 and other expenses ₹50,000. Express both expenses and PBT (there is no other income and no other expense) as common-size percentages. (3 marks)
Hint
Base 5,00,000.
Answer
Materials 60%; other expenses 10%; PBT = 1,50,000 = 30%.
Q4 · 3 marks · Short answerHarder board level
A balance sheet total is ₹25,00,000. Inventories are ₹3,75,000, trade receivables ₹2,50,000 and cash ₹1,25,000. Express each as a common-size percentage. (3 marks)
Hint
Divide by 25,00,000.
Answer
Inventories 15%; trade receivables 10%; cash 5%.
Q5 · 3 marks · Short answerHarder board level
Revenue from operations ₹8,00,000; other income ₹40,000; expenses ₹6,00,000; tax 25%. Prepare a common-size Statement of Profit and Loss. (3 marks)
Hint
PBT 2,40,000.
Answer
Revenue 100%; other income 5%; total income 105%; expenses 75%; PBT 2,40,000 = 30%; tax 60,000 = 7.5%; PAT 1,80,000 = 22.5%.
Q6 · 3 marks · Short answerHarder board level
Give three differences between comparative statements and common-size statements. (3 marks)
Hint
Direction, base, purpose.
Answer
(1) Comparative compares the same item across years (horizontal); common-size relates items to a total within a year (vertical). (2) Comparative uses the previous year as base for % change; common-size uses revenue from operations or balance sheet total. (3) Comparative shows growth or decline; common-size shows structure and helps compare firms of different sizes.
Q7 · 3 marks · Short answerHarder board level
Firm A has revenue of ₹10,00,000 and PAT of ₹1,50,000; Firm B has revenue of ₹40,00,000 and PAT of ₹4,00,000. Using common-size percentages, which is more profitable relative to its sales? (3 marks)
Hint
PAT ÷ revenue.
Answer
A: 15%; B: 10%. Firm A is more profitable relative to sales, though B earns more in rupees.
Q8 · 1 mark · Assertion-reasonHarder board level
Assertion (A): In a Common-size Statement of Profit and Loss, total income is taken as 100.
Reason (R): Revenue from operations is the base in a Common-size Statement of Profit and Loss.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Hint
Which line is 100?
Answer
(d) A is false, but R is true.
Q9 · 3 marks · Short answerHOTS / competency
A Common-size Balance Sheet shows shareholders' funds 55%, non-current liabilities 25% and current liabilities 20%. The balance sheet total is ₹12,00,000. Find the amounts. (3 marks)
Hint
Percent × total.
Answer
Shareholders' funds ₹6,60,000; non-current liabilities ₹3,00,000; current liabilities ₹2,40,000 (total ₹12,00,000).
Q10 · 3 marks · Short answerHOTS / competency
Employee benefits expense was 15% of revenue last year and 18% this year, while revenue rose. What might this indicate and what should management check? (3 marks)
Hint
Cost growing faster than revenue.
Answer
Employee costs grew faster than revenue, so the cost structure worsened and margins will fall unless other costs dropped. Management should check whether new hiring or pay rises are producing matching sales growth, and look at staff productivity.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Base of a common-size Statement of Profit and Loss?Show answer
Revenue from operations.
2.Base of a common-size Balance Sheet?Show answer
Total of the balance sheet.
3.Revenue ₹4,00,000; PAT ₹48,000: PAT %?Show answer
12%.
4.Can total income exceed 100% in a common-size P&L?Show answer
Yes, when there is other income.
5.Common-size statements are which type of analysis?Show answer
Vertical analysis.

Common-size Statements: frequently asked questions

What is a common-size statement in Class 12?

A statement in which every item is shown as a percentage of a common base: revenue from operations for profit and loss, and the balance sheet total for the balance sheet.

Why are common-size statements useful?

They show the structure of costs or financing and allow fair comparison between firms of different sizes or one firm over years.

Do I need absolute figures in a common-size statement?

Yes, show the amounts and the percentages side by side unless the question asks only for percentages.

What is the main limitation of common-size statements?

Percentages hide absolute size and there are no fixed norms, so they must be read with other tools.