Updated July 18, 2023
Definition of Partial Income Statement
The partial income statement is prepared for a specified period, as opposed to the normal standard period for which companies typically prepare such statements, such as monthly, quarterly, bi-annually, or annually.
Companies use partial income statements to denote income statements that include only major line items rather than the complete set of line items usually found in an income statement.
Explanation
Companies prepare partial income statements for specific purposes that deviate from the usual financial reporting requirements. In such cases, a partial income statement is necessary to account for the income related to the acquired or discontinued business. These statements can be prepared for periods as short as a single day or for any non-standard period that is relevant to the particular situation.
The purpose of creating such a partial income statement could be to highlight certain line items as well as for making a quick and focused comparison in certain cases.
Examples of Partial Income Statement
Let’s understand the partial income statement with the help of two examples that show both purposes for which normally the statement is prepared. ABC International is a distributor of fruits to stores across Brazil. The company has multiple subsidiaries and usually analyzes the performance of each subsidiary using a partial income statement:
Details of the partial income statement of its subsidiary XYZ international limited are as follows:
| Revenue | $200,000,000 |
| Operating Expenses | $58,000,000 |
| EBIT | $142,000,000 |
| Less: Interest Expense | (20,000,000) |
| Pretax Income
Less: Income Tax Expense Net Income |
122,000,000
(41,480,000) $80,520,000 |
The above is one such example of a partial income statement where only mainline items are shown rather than the complete line items forming part of the income statement.
Crazy international limited is into garment manufacturing with subsidiaries in India, the USA, and singapore. Due to low demand, the company decided to close its subsidiary in India on 24th Feb 2020. On 31st March 2020, while finalizing the financial statements, the company prepared a partial income statement for the period 01st Jan 2020 to 24th Feb 2020 for its singapore operations.
Importance of Partial Income Statement
Partial income statements are important in terms of the objective they intend to serve. These statements can either be single-step or multiple steps, with both serving different purposes.
A single-step partial income statement helps in making a detailed analysis of a single component of the income statement. These are useful in cases where the business wants to focus in detail on a single component of the income statement. for instance, a company may be interested in a deep analysis of its selling and administrative expenses and will opt for a single-step partial income statement.
A multiple-step partial income statement helps in making a detailed analysis of multiple components of the income statement but not all. These are useful in cases where the business wants to focus in detail on a few components of the income statement and not all in totality.
However, it is pertinent to note that sometimes the name partial income statement name itself can be misleading as the statement is not partial in true terms but only reports a complete income statement for a non-standard period (for instance, a week or some days in a month, etc.)
Partial Income Statement vs Income Statement
|
Basis |
Partial Income Statement |
Income Statement |
| Audited | It is not Audited. Auditors’ don’t certify Partial Income Statement. | It is Audited, and the same is certified by Auditors. |
| Format | It doesn’t have a predefined format and is usually customized as per the requirements of the business. Also, it is not comparable across the two businesses. | It has a predefined format and is usually non-customizable and prepared following relevant Accounting standards. Further, it is comparable across two businesses due to its uniformity. |
| Regularity | It is not regular. Companies prepare partial income statements in specific situations such as mergers, acquisitions, and business discontinuations that occur during the accounting year. | It is regular and prepared periodically. |
Advantages
Some of the advantages are:
- It is easy to prepare compared to a complete Income Statement.
- It is not prepared regularly and, as such, is a one-off statement.
- It is helpful in cases where certain line items are to be analyzed in detail, which otherwise would not be possible in Income Statement.
Disadvantages
Some of the disadvantages are:
- Auditors do not audit the partial income statement, and that makes them less reliable compared to audited statements.
- The usage of a partial income statement is indeed limited to specific purposes, and it does not depict the complete set of line items as found in a standard income statement.
Conclusion
A partial income statement helps in serving the purpose of undertaking a detailed analysis of certain components of an income statement ( in the form of a single step) or multiple components of an income statement ( in the form of a multi-step).
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This is a guide to Partial Income Statement. Here we also discuss the definition and examples of partial income statements along with advantages and disadvantages. You may also have a look at the following articles to learn more –
