Tabunggao, Shane Josa Marie M.

AC23

HORIZONTAL AND VERTICAL ANALYSIS

1. The financial position of NOAH Company at the end of 2010 and 2011 are as follows:
In thousands In thousands
Assets 2011 2010 Liabilities 2011 2010
Cash P 3,000 P 5,000 Current liabilities P 30,000 P 47,000
Accounts receivable 40,000 25,000 Long-term liabilities 88,000 74,000
Inventory 27,000 30,000 Total liabilities P 118,000 P 121,000
Land, building and 100,000 75,000 Stockholders’ equity
equipment
Long-term investment 15,000 0 8% Preferred stock P 10,000 P 9,000
Intangible assets 10,000 10,000 Common stock 54,000 42,000
Other assets 5,000 20,000 Additional paid in 5,000 5,000
capital
Total assets P 200,000 P 165,000 Retained earnings 13,000 (12,000)
Total stockholders’ P 82,000 P 44,000
equity
Total liabilities and SHE P 200,000 P 165,000
Sales and cost of goods sold insignificantly change in 2011 in relation with 2010. Required: (1) prepare a
comparative balance sheet showing peso and percentage changes for 2011as compared with 2010. (2) prepare a
common size balance sheet as of December 31, 2010 and 2011.

1) Comparative balance sheet:

Increase (decrease)
Peso Percent
Cash 3,000 – 5,000 (2,000) (-2,000/5,000)100 (40)
Accounts receivable 40,000 – 25,000 15,000 (15,000/25,000)100 60

Inventory 27,000 – 30,000 (3,000) (-3,000/30,000)100 (10)

Land building and 100,000 – 75,000 25,000 (25,,000/75,000)10 33.33

equipment 0

Long-term investment 15,000 – 0 15,000 (15,000/0)100 100

Intangible assets 10,000 – 10,000 0 (0/10,000)100 0

Other assets 5,000 – 20,000 (15,000) (- (75)

15,000/20,000)100

Total assets 200,000 – 165,000 35,000 (35,000/165,000)10 21.21

0

Current liabilities 30,000 – 47,000 (17,000) (- (36.17)

17,000/47,000)100

Long-term liabilities 88,000 – 74,000 14,000 (14,000/74,000)100 18.92

 Total liabilities 118,000 – 121,000 (3,000) (- (2.48)
3,000/121,000)100

8% preferred stock 10,000 – 9,000 1,000 (1,000/9,000)100 11.11

Common stock 54,000 – 42,000 12,000 (12,000/42,000)100 28.57

Additional paid in capital 5,000 – 5,000 0 (0/5,000)100 0

Retained earnings 13,000 – (12,000) 25,000 (25,000/- 208.33

12,000)100

Total stockholders’ equity 82,000 – 44,000 38,000 (38,000/44,000)100 86.36

2) Common size balance sheet

2011 2010
Cash (3,000/200,000)100 1.50% (5,000/165,000)100 3.03%
Accounts receivable (40,000/200,000)100 20.00% (25,000/165,000)100 15.15%
Inventory (27,000/200,000)100 13.50% (30,000/165,000)100 18.18%
Land building and (100,000/200,000)10 50.00% (75,000/165,000)100 45.45%
equipment 0
Long-term investment (15,000/200,000)100 7.50% (0/165,000)100 0.00%
Intangible assets (10,000/200,000)100 5.00% (10,000/165,000)100 6.06%
Other assets (5,000/200,000)100 2.50% (20,000/165,000)100 12.12%
Total assets (200,000/200,000)10 100.00% (165,000/165,000)10 100.00%
0 0
Current liabilities (30,000/200,000)100 15.00% (47,000/165,000)100 28.48%
Long-term liabilities (88,000/200,000)100 44.00% (74,000/165,000)100 44.85%
Total liabilities (118,000/200,000)10 59.00% (121,000/165,000)10 73.33%
0 0
8% preferred stock (10,000/200,000)100 5.00% (9,000/165,000)100 5.45%
Common stock (54,000/200,000)100 27.00% (42,000/165,000)100 25.45%
Additional paid in capital (5,000/200,000)100 2.50% (5,000/165,000)100 3.03%
Retained earnings (13,000/200,000)100 6.50% (- (7.27%)
12,000/165,000)100
Stockholders’ equity (82,000/200,000)100 41.00% (44,000/165,000)100 26.67

2. ROSALKA Corporation’s sales, current assets and current liabilities have been reported as follows over the last
five years (amounts in thousands):
2006 2005 2004 2003 2002
Sales P 10,880 P 9,600 P 9,200 P 8,640 P 8,000
Current assets 2,626 2,181 2,220 2,267 2,225
Current liabilities 475 450 350 325 250
Required: express all the sales, current assets and current liabilities on trend index. Round your decimals up to 2
places:
 a) Use 2002 as the base year
2006 2005 2004 2003 2002
Sales 136.00% 120.00% 115.00% 108.00% 100.00%
SOLUTION (10,880/8,000)1 (9,600/8,000)1 (9,200/8,000)1 (8,640/8,000)1 (8,000/8,000)1
: 00 00 00 00 00
Current 118.02% 98.02% 99.78% 101.89% 100.00%
assets
SOLUTION (2,626/2,225)10 (2,181/2,225)1 (2,220/2,225)1 (2,267/2,225)1 (2,225/2,225)1
: 0 00 00 00 00
Current 190.00% 180.00% 140.00% 130.00% 100.00%
liabilities
SOLUTION (475/250)100 (450/250)100 (350/250)100 (325/250)100 (250/250)100
:

b) Use 2006 as the base year

2006 2005 2004 2003 2002
Sales 100.00% 88.24% 84.56% 79.41% 73.53%
SOLUTIO (10,880/10,880) (9,600/10,880) (9,200/10,880) (8,640/10,880) (8,000/10,880)
N: 100 100 100 100 100
Current 100.00% 83.05% 84.54% 86.33% 84.73%
assets
SOLUTIO (2,626/2,626)10 (2,181/2,626)1 (2,220/2,626)1 (2,267/2,626)1 (2,225/2,626)1
N: 0 00 00 00 00
Current 100.00% 94.74% 73.68% 68.42% 52.63%
liabilities
SOLUTIO (475/475)100 (450/475)100 (350/475)100 (325/475)100 (250/475)100
N:

3. The following information presents the operating results of AGUA BENDITA Company for the year ended
December 31, 2011 and 2010:
In thousands
2010 2011
Sales P 453,200 P 504,000
Sales returns (13,200) (24,000)
Net sales P 440,000 P 480,000
Cost of goods sold (242,000) (360,000)
Gross profit P 198,000 P 120,000
Selling and general expenses (118,800) (96,000)
Operating income P 79,200 P 24,000
Other expenses (30,800) (33,600)
Income (loss) before tax P 48,400 P (9,600)
Income tax (refund) (14,520) 2,880
Net income (loss) P 33,880 P (6,720)
Required: (1) Prepare a comparative income statement showing peso changes and percentage changes for 2011
as compared with 2010; (2) Prepare a comparative income statement showing a percentage analysis of
component revenue and expense items of net sales for each year

1. Comparative income statement showing peso changes and percentage changes

 In Thousands Increase (decrease)
Peso Percent
(%)
Sales 504,000 – 453,200 (50,800) 9(50,800/453,200)10 11.21
0
Sales Returns 24,000 – 13,200 10,800 (10,800/13,200)100 81.82

Net Sales 480,000 – 440,000 40,000 (40,000/440,000)100 9.09

Cost of goods sold 360,000 – 242,000 118,000 (118,000/242,000)10 48.76

0

Gross Profit 120,000 – 198,000 (78,000) (- (39.39)

78,000/198,000)100

Selling and general 96,000 – 118,800 (22,800) (- (19.19)

expenses 22,800/118,000)100

Operating income 24,000 -79,200 (55,200) (-55,200/79,200)100 (69.70)

Other expenses 33,600 – 30,800 2,800 (2,800/30,800)100 9.09

Income (loss) before tax (-9,600) – 48,400 (58,000) (58,000/48,400)100 119.83

Income tax (refund) 2,880 – (-14,520) (17,400) (-17,400/-14,520)100 119.83

Net income (loss) (-6,720) – 33,880 (40,600) (-40,600/33,880)100 119.83

2. Comparative income statement showing a percentage analysis of component revenue and expense

Agua Bendita Company

Comparative Income Statement
For the Year Ended December 31, 2011 and 2010

2010 2011
Amount % Amount %
Sales 453,200 103.00 504,000 105

Sales Return (13,200) (3.00) (24,000)

(5)
Net Sales 440,000 100 480,000 100
Cost of Goods Sold (242,000) (55) (360,000)
(75)
Gross Margin 198,000 45 120,000 25
Selling and general expenses (118,800) (27) (96,000)
(20)
Operating income 79,200 18 24,000 5
Other expenses (30,800) 7 (33,600)
(7)
 Income (loss) before tax 48,400 11 9,600 2
Incometax (refund) (14,520) (3.3) (2,880)
(0.6)
Net income (loss) 33,880 7.7 (6,720)
(1.4)

4. The comparative income statement is given below for MAGKARIBAL Company:

Magkaribal Company
Comparative Income Statement
For the years ended June 30, 2010 and 2009

2010 2009
Sales P 5,000,000 P 4,000,000
Less: cost of goods sold 3,160,000 2,400,000
Gross margin P 1,840,000 P 1,600,000
Less: total expenses
Selling expenses P 900,000 P 700,000
Administrative expenses 680,000 584,000
Total expenses P 1,580,000 P 1,284,000
Net operating income P 260,000 P 316,000
Less: Interest expense 700,000 40,000
Net income before taxes P 190,000 P 276,000
The president is concerned that net income is down in 2010 even though sales have increased during the year.
The president is also concerned that administrative expenses have increased, since the company made a
concerted effort during 2010 to pare “fat” out of the organization. Required: Express each year’s income
statement in common size percentages. Carry computations to one decimal place.

2010 2009
Sales (5,000,000/5,000,000)10 100% (4,000,000/4,000,000)10 100%
0 0
Cost of goods sold (3,160,000/5,000,000)10 63.2% (2,400,000/4,000,000)10 60%
0 0
Gross margin (1,840,000/5,000,000)10 36.8% (1,600,000/4,000,000)10 40%
0 0
Selling expenses (900,000/5,000,000)100 18% (700,000/4,000,000)100 17.5%
Administrative (680,000/5,000,000)100 13.6% (584,000/4,000,000)100 14.6%
expenses
Total expenses (1,580,000/5,000,000)10 31.6% (1,284,000/4,000,000) 32.1%
0
Net operating income (260,000/5,000,000)100 5.2% (316,000/4,000,000)100 7.9%
Interest expense (700,000/5,000,000)100 14% (40,000/4,000,000)100 1%
Net income before tax (190,000/5,000,000)100 3.8% (276,000/4,000,000)100 6.9%