Statement of Comprehensive Income / Income Statement / Other Comprehensive Income

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.

Income statement under this format is divided into following sections/subtotals:

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:

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
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