# Common-size Statement of Financial Position

## Horizontal Common-size Balance Sheet / Statement of Financial Position

Horizontal analysis of balance sheet helps in determining the increase or decrease of each item of balance sheet over period of time. This is achieved by comparing each item of the balance sheet with the corresponding item pertaining to previous period or budget.

For this analysis usually a base period is selected in relation to which figures from other periods are analysed to compute increase or decrease in percentage form. Usually the earliest available year is used as a base period. For example inventory figures are available as follows:

2013: 150,000
2014: 180,000

If 2013 is the base period then horizontal analysis is calculated as follows:

Compute the change by subtracting the two figures:
180,000 – 150,000 = 30,000

Divide the change over the base period figure:
30,000 / 150,000 x 100 = 20%

Steps to prepare Horizontal Common-size Balance Sheet / Statement of Financial Position

Following is the comparative statement of financial position for the year 2014 and 2013 for the purpose of horizontal analysis:

 PakAccountants Inc. Statement of Financial Position 2014 2013 Non-current Assets Land 120,000 120,000 Building 350,000 300,000 Machinery 180,000 195,000 Total non-current assets 650,000 615,000 Current Assets Inventory 80,000 85,000 Accounts receivable 95,000 100,000 Cash 54,000 75,000 Total current assets 229,000 260,000 879,000 875,000 Shareholders’ equity 500,000 420,000 Long term liability 8% Debentures 210,000 250,000 Current liabilities Account payable 85,000 75,000 Tax payable 62,000 71,000 Accrued expenses 22,000 59,000 Total current liabilities 169,000 205,000 879,000 875,000

Step 1: Determine the base period to initiate the horizontal analysis. Usually the earliest period available is used as a base period which in our case is 2013.

Step 2: Select the item from 2013 (base) period and deduct it from the corresponding figure from 2014 period. For example Building asset in 2013 has 300,000. Deduct 300,000 from 350,000 to calculate the increase or decrease. In case of building it is 50,000 increase (350,000 – 300,000).

Step 3: Divide the difference calculated in Step 2 over the figure of base period to calculate the quotient i.e. 50,000 / 300,000 = 0.167

Step 4: Multiply the quotient with 100 to calculate the change in percentage form i.e. 0.167 x 100 = 16.7%

Following is the balance sheet with complete horizontal analysis of every item:

 PakAccountants Inc. Statement of Financial Position 2014 2013 Change % Change Non-current Assets Land 120,000 120,000 0 0.0 % Building 350,000 300,000 50,000 16.7 % Machinery 180,000 195,000 (15,000) (7.7)% Total non-current assets 650,000 615,000 35,000 5.7 % Current Assets Inventory 80,000 85,000 (5,000) (5.9)% Accounts receivable 95,000 100,000 (5,000) (5.0)% Cash 54,000 75,000 (21,000) (28.0)% Total current assets 229,000 260,000 (31,000) (11.9)% 879,000 875,000 4,000 0.5 % Shareholders’ equity 500,000 420,000 80,000 19.0 % Long term liability 8% Debentures 210,000 250,000 (40,000) (16.0)% Current liabilities Account payable 85,000 75,000 10,000 13.3 % Tax payable 62,000 71,000 (9,000) (12.7)% Accrued expenses 22,000 59,000 (37,000) (62.7)% Total current liabilities 169,000 205,000 (36,000) (17.6)% 879,000 875,000 4,000 0.5 %