Question

In 'Common size income statement' each item is expressed as a percentage of ____

• A. Total Income
• B. Total Expenses
• C. Profit After Tax
• D. Revenue from Operations

Hint:

Common-Size Statement Bases: - Income Statement: Revenue from Operations (Net Sales) = 100%. - Balance Sheet: Total Assets = 100% and Total Equity & Liabilities = 100%.

Answer 1

The Correct Option is D

To solve the problem, we need to identify the base against which each item in the "Common Size Income Statement" is expressed as a percentage.

1. Understanding Common Size Income Statement:
In a common size income statement, each line item is expressed as a percentage of a key figure, which helps to compare financial performance across companies or periods.

2. Analyzing the Options:

• (A) Total Income: This would include all income sources, but in the context of a common size income statement, this is not the most common base for expressing expenses or profits.
• (B) Total Expenses: This is also not the base in a common size income statement.
• (C) Profit After Tax: While profit after tax is a key figure, it is not typically the base for expressing items in a common size income statement.
• (D) Revenue from Operations: Correct — In a common size income statement, each item is usually expressed as a percentage of the total revenue from operations. This provides insight into the proportion of each item relative to the company's revenue.

Final Answer:
Correct Option: (D) Revenue from Operations