Which one of the following are correct in connection with the Common Size Statement?

(A) Expressed as a percentage on revenue from operation
(B) Horizontal analysis
(C) Vertical analysis
(D) Expressed as a percentage on total assets

Choose the correct option:

The correct option is (A), (C) and (D) only.

Explanation:

A Common Size Statement is an financial tool used to analyze and compare financial statements by expressing each line item as a percentage of a common base amount. Let us evaluate the given statements to understand why they are correct or incorrect:

1. Statement (A) - Expressed as a percentage on revenue from operation:
In a common size Income Statement (or Statement of Profit and Loss), "Revenue from Operations" (Net Sales) is taken as the base (100%), and all other items (like cost of materials consumed, employee benefits, other expenses, etc.) are expressed as a percentage of Revenue from Operations. Therefore, Statement (A) is correct.

2. Statement (C) - Vertical analysis:
Common size analysis is a form of vertical analysis. In vertical analysis, financial data of a single period is analyzed by expressing each item in the statement as a percentage of a chosen base figure within the same period (such as Total Assets or Revenue from Operations). It looks down the column rather than across multiple periods. Therefore, Statement (C) is correct.

3. Statement (D) - Expressed as a percentage on total assets:
In a common size Balance Sheet, the "Total Assets" (or Total Equity and Liabilities) is taken as the base (100%), and every asset, liability, and equity item is expressed as a percentage of this total. Therefore, Statement (D) is correct.

Why Statement (B) is incorrect:
Horizontal analysis involves comparing financial data over multiple consecutive accounting periods (time-series analysis) to detect trends or growth rates. Comparative financial statements represent horizontal analysis, whereas Common Size statements represent vertical analysis. Thus, Statement (B) is incorrect.

Since statements (A), (C), and (D) are correct, the correct option is (A), (C) and (D) only.