Under which statement is each item of expenses taken as a percentage of net sales?

Common Size Income Statement

The correct answer is option 4- Common Size Income Statement.

* Under Common Size Income statement is each item of expenses taken as a percentage of net sales.

Common Size Statement, also known as a component percentage statement, is a financial tool for studying the key changes and trends in the financial position and operational result of a company. Here, each item in the statement is stated as a percentage of the aggregate, or revenue from operations of which that item is a part. For example, a common size balance sheet shows the percentage of each asset to the total assets, and that of each liability to the total liabilities. Similarly, in the common size statement of profit and loss, the items of expenditure are shown as a percentage of the revenue from operations. If such a statement is prepared for successive periods, it shows the changes of the respective percentages over a period of time. Common size analysis is of immense use for comparing enterprises that differ substantially in size as it provides an insight into the structure of financial statements. Inter-firm comparison or comparison of the company’s position with the related industry as a whole is possible with the help of common size statement analysis.
The following procedure may be adopted for preparing the common-size statements.
1. List out absolute figures in rupees at two points of time, say year 1, and year 2.
2. Choose a common base (as 100). For example, revenue from operations may be taken as base (100) in case of statement of profit and loss and total assets or total liabilities (100) in case of balance sheet.

OTHER OPTIONS-

* Comparative Balance Sheet- It provides columns for the figures for both the current year as well as for the previous year and for the changes during the year, both in absolute and relative terms among all the items of balance sheet.

* Comparative income statement- It provides columns for the figures for both the current year as well as for the previous year and for the changes during the year, both in absolute and relative terms among all the items of income statement.

* Common Size Balance Sheet- It shows each item taken as a percentage of assets.