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

Net profit of Kaveri Auto Ltd. was Rs 40 lakh in Year 1 (base), Rs 50 lakh in Year 2 and Rs 45 lakh in Year 3. Which statement about trend percentages with Year 1 as base is correct?

Year 3 index is 112.5, which is lower than the Year 2 index of 125. Each index is the year's profit divided by base-year profit of Rs 40 lakh times 100, so profit remained above base level but declined from the previous year.

  1. AYear 3 index is 90 because profit fell 10% from Year 2
  2. BYear 3 index is 112.5 and it is lower than the Year 2 index of 125Correct
  3. CYear 3 index is 112.5 and it is higher than the Year 2 index
  4. DYear 2 index is 150 and Year 3 index is 125

Explanation

Year 2 index = 50/40 x 100 = 125. Year 3 index = 45/40 x 100 = 112.5. Index fell from 125 to 112.5, though still above 100. Option 90 wrongly uses Year 2 as the base.

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