Question

Income statement for the year ended 31st March, 2019 and 31st March, 2020 is given below:

Particulars	31st March 2019 (₹)	31st March 2020 (₹)
Net Sales	10,00,000	12,00,000
Less: Cost of goods sold	6,000,000	7,20,000
Gross Profit	4,00,000	4,80,000
Less: Office and administrative expenses	1,10,000	1,44,000
Selling and distribution expenses	1,05,000	1,32,000
Net Profit	1,85,000	2,04,000

Prepare:

1. Common size income statement for the year 31st March, 2019 and 31st March, 2020.
2. State in which year the profitability was better?

Answer 1

(1) Common size income statement for the year 31st March, 2019 and 31st March, 2020.

Particulars	31.03.2019		31.03.2020
	(₹)	(%)	(₹)	(%)
Net Sales	10,00,000	100%	12,00,000	100%
Less: Cost of Goods sold	6,00,000	60%	7,20,000	60%
Gross Profit:	4,00,000	40%	4,80,000	40%
Less: (i) Office and Administrative Expenses	1,10,000	11%	1,44,000	12%
(ii) Selling Distribution Expenses	1,05,000	10.5%	1,32,000	11%
Net Profit:	1,85,000	18.5%	2,04,000	17%

(2) After comparison of income statement of year ended 31^st March, 2019 with the income statement of 31st March, 2020, it is concluded that the profitability is more (greater) in the year ended on 31^st March, 2019.

Working Notes:

Net Sales is to be taken as base.

(1) In the year ended on 31st March, 2019, Net Sales ₹10,00,000 is taken as base i.e: 100%
In the year ended on 31st March, 2020, Net Sales ₹12,00,000 is taken as base i.e. 100%

(2) For the year ended 31st March, 2019: % of Cost of goods sold = `"Cost of goods sold"/"Net Sales" xx100xx(6,00,000)/(10,00,000)xx100 = 60%`
For the year ended 31^st March, 2020: % of Cost of goods sold `= (7,20,000)/(12,00,000) xx 100 = 60%`