Multi-step Income Statement
Entities around the world even if they are using different accounting frameworks they use this method to prepare income statement. As stated earlier, in multi-step format there are multiple subtotals in the income statement. This format coupled with functional basis of classification of expenses is the best available format (from understandability point of view) to report incomes and expenses of the entity in a particular period.
Operating: This section comprises of incomes and expenses that are result of entity’s principal activities i.e. actual business of the entity and includes:
Revenue
Cost of goods sold
Subtotal here is referred as Gross profit
Administrative expenses
Distribution expenses
Subtotal here is referred as Operating profit
Non-operating: This section holds incomes and expenses that are result of such activities that do not constitute principal activities of the business however are part of the business process and have following two subcategories:
Other income
Other expenses
Subtotal here is referred as Profit before tax
Income tax provision/expense: This section includes the taxes and duties that are levied on entity’s profits from continuing operations. Usually it is a provision as date at which entity’s financial year ends is different from the date at which entity’s tax year ends. This provision is adjusted from any under/over provisions from previous year also. Most of the time it contains a single line item:
Income tax expense/provision for tax
Subtotal here is referred as Profit after tax/Profit from continuing operations
Discontinued operations: This section holds incomes or expenses from entity’s discontinued operations. This is required to be a single line item net of tax as per the instructions of IFRS 5:
Gain/loss from discontinued operations
Total here is referred as Total profit for the period
Condensed Example: Multi-step Income Statement Format
| PakAccountants Inc. Income Statement For the period ended December 31, 20XX |
|
| Continuing operations | |
| Revenue | X |
| Cost of sales | (X) |
| Gross Profit | X |
| Administrative expenses | (X) |
| Distribution expenses | (X) |
| Operating profit | X |
| Finance costs | (X) |
| Other expenses | (X) |
| Other income | X |
| Profit before tax | X |
| Income tax provision | (X) |
| Profit from continuing operations | X |
| Discontinued operations | |
| Gain on discontinued operations | X |
| Total profit for the period | X |
Expanded Example: Multi-step Income Statement
| PakAccountants Inc. Income Statement For the period ended December 31, 20XX |
|||
| Sales revenue | |||
| Turnover | 8,000,000 | ||
| Less: Sales discount | 50,000 | ||
| Less: Sales return | 125,000 | 175,000 | |
| Net sales | 7,825,000 | ||
| Less: Cost of goods sold | |||
| Opening stock | 850,000 | ||
| Purchases | 2,250,000 | ||
| Purchase returns | 420,000 | ||
| Carriage inwards | 75,000 | ||
| Discounts received | 56,000 | 1,849,000 | |
| Wages | 620,000 | ||
| Closing stock | 960,000 | ||
| 2,359,000 | |||
| Gross profit | 5,466,000 | ||
| Operating expenses | |||
| Administrative expenses | |||
| Staff salaries | 123,000 | ||
| Audit fee | 560,000 | ||
| Insurance premium | 77,000 | ||
| Depreciation of office equipment | 352,000 | ||
| Lawyers’ fee | 330,000 | ||
| Heating and lighting | 65,000 | ||
| Stationery and supplies | 15,500 | 1,522,500 | |
| Selling and Distribution expenses | |||
| Sales commission | 460,000 | ||
| Advertisement | 780,000 | ||
| Carriage outwards | 252,000 | ||
| Depreciation of delivery vehicle | 480,000 | ||
| Ordering expenses | 52,600 | ||
| Miscellaneous selling expenses | 25,800 | 2,050,400 | 3,572,900 |
| Operating profit | 1,893,100 | ||
| Other incomes | |||
| Dividend income | 128,000 | ||
| Rental income | 88,000 | ||
| Interest income | 69,000 | 285,000 | |
| Other expenses | |||
| Interest on loan | 55,000 | ||
| Profit before tax | 2,123,100 | ||
| Tax expense | 323,000 | ||
| Profit from continuing operations | 1,800,100 | ||
| Discontinued operations | |||
| Loss on discontinued operations | 1,200,000 | ||
| Total profit for the period | 600,100 | ||