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CMA Intermediate · Financial Management and Business Data Analytics · Comparative, Common-Size Financial Statements and Trend Analysis

In trend analysis of Sharma Textiles Ltd., sales were Rs 80 lakh in the base year and Rs 100 lakh, Rs 120 lakh in the next two years. Taking the base year as 100, what is the trend index for the third year?

The trend index is 150. Trend percentages divide each year's figure by the base-year figure and multiply by 100, so Rs 120 lakh divided by Rs 80 lakh gives 1.5, or 150, showing a 50 percent rise over the base year.

  1. A120
  2. B150Correct
  3. C130
  4. D110

Explanation

Trend index = (Current year amount / Base year amount) x 100 = (120/80) x 100 = 150. Option 120 wrongly uses the absolute rupee figure as the index, while 130 treats the Rs 40 lakh increase as a percentage of 120... in effect adding 30 instead of 50.

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