Question

In common size income statement, each item is expressed as a percentage of ____.

• A. Total income
• B. Total expenses
• C. Revenue from operations
• D. Net profit after tax

Hint:

In a common size Statement of Profit and Loss, revenue from operations is 100 percent.

Answer 1

The Correct Option is C

Step 1: Understand the question:
A common size income statement is the common size Statement of Profit and Loss. We must find the base for it.

Step 2: Recall the base used in each common size statement:
Common size Balance Sheet: items as a percentage of total assets (or total liabilities).
Common size Statement of Profit and Loss: items as a percentage of revenue from operations. Revenue from operations is taken as 100.

Step 3: Show it with a small example:
Revenue from operations Rs. 8,00,000. Employee benefit expenses Rs. 1,60,000.
Employee benefit expenses = 1,60,000 / 8,00,000 x 100 = 20 percent of revenue.

Step 4: Why the other options are wrong:
Option (A) Total income includes other income. The standard base is revenue from operations, not total income.
Option (B) Total expenses is not a base for the statement. It is one of the items that is expressed as a percentage.
Option (D) Net profit after tax is one of the items shown as a percentage, so it cannot be the base.

Final Answer:
The base is Revenue from operations. Option (C).