There are two statements marked as Assertion (A) and Reason (R). Mark your answer as per the options given below.

Assertion (A):  Common-size Statement is a statement in which individual items of financial statements of two or more years are converted into percent of a common base for comparison.
Reason (R):  Common-size Income statement is prepared to place each item thereof and convert them into percent of the Total of Liabilities Part or Assets Part.

Choose the correct answer from the options given below.

Both Assertion (A) & Reason (R) are not correct.

The correct answer is option 4- Both Assertion (A) & Reason (R) are not correct.

Assertion (A):  Common-size Statement is a statement in which individual items of financial statements of two or more years are converted into percent of a common base for comparison. THIS IS FALSE as one year data is converted into percentage to common base.
Reason (R):  Common-size Income statement is prepared to place each item thereof and convert them into percent of the Total of Liabilities Part or Assets Part. THIS IS FALSE as income statement take total of revenue from operations.

Common Size Statement, also known as 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 which 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.