CS Executive · Corporate Accounting and Financial Management · Financial Statement Analysis
In a comparative balance sheet prepared for two consecutive years, what is the usual base for calculating the percentage change in an item?
The earlier or previous year's figure is the base, because percentage change shows how much an item has moved from where it stood before. The change is divided by the previous year amount and multiplied by 100, not by the current year figure.
- AThe figure of the earlier (previous) yearCorrect
- BThe figure of the current year
- CThe total of both years' figures
- DThe average of the item across the industry
Explanation
Comparative statements show absolute change and percentage change over the previous year. The percentage change is computed as (current year - previous year) / previous year x 100. Using the current year as base would understate or overstate the change.
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