CS Executive · Corporate Accounting and Financial Management · Financial Statement Analysis
Kaveri Ltd's total assets were Rs 5,00,000 in Year 1 and Rs 6,00,000 in Year 2. Inventory was Rs 1,00,000 in Year 1 and Rs 1,26,000 in Year 2. Which statement about inventory in the common size balance sheets is correct?
Inventory rose from 20% of total assets in Year 1 to 21% in Year 2, an increase of one percentage point. Although inventory grew 26% in rupees, total assets grew 20% as well, so its share rose only slightly.
- AInventory share rose from 20% to 21%, an increase of 1 percentage pointCorrect
- BInventory share fell from 20% to 21%
- CInventory share rose from 20% to 26%
- DInventory share stayed constant at 20%
Explanation
Year 1: 1,00,000 / 5,00,000 = 20%. Year 2: 1,26,000 / 6,00,000 = 21%. So the share rose by 1 percentage point. The 26% option wrongly treats the rupee growth of 26% in inventory as its share of assets, ignoring that total assets also grew.
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