Definition of Partial Income Statement
Partial income statement refers to that income statement that is prepared for a specified period as against the normal standard period for which such statement is prepared such as monthly, quarterly, Bi-Annual, and annual basis. Also, a partial income statement is used to denote those income statements which comprise of only major line items as against the complete set of line items which usually are a part of the income statement. In the short partial income statement is prepared either for a part of the accounting period, not of a usual period, or shown in a condensed form with only a few line items or both.
Explanation
A partial income statement is prepared for a specific purpose. they were not prepared for the usual financial reporting purpose. Such statements are prepared in specific cases where a business is acquired or business is discontinued during the accounting period and a partial income statement is required to account for such business income. These statements can be prepared for even a single day as well or for any non-standard period.
Partial income statement also refers to those statements where only major line items are shown instead of the whole income statement. 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 which shown 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 is 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.
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Another example to depict the use of partial income statement is shown below:
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. Such a statement is prepared as a one-off event for the specific event.
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 step with both serving a different purpose.
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 the deep analysis of its selling and administrative expenses 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. For instance, a company may be interested in the deep analysis of its cost of goods sold and interest expenses will opt for a multiple-step partial income statement.
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 reporting 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
The two statements have differences. key differences are enumerated below:
|
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 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. It is prepared in a specific situation only such as Merger, Acquisition, and Discontinuation 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:
- The partial income statement is not audited by auditors and that makes them less reliable compared to audited statements.
- Its usage is limited to a certain purpose only and it doesn’t depict the complete line items. further in cases where a partial statement is prepared for discontinued operations and business acquired during the year. It is difficult to compare the same.
- It doesn’t form part of complete financial statements and can’t be used as a substitute for Audited Financial Statements.
- At times these statements can lead to a lot of misinformation due to the limited line items or the non-standard period for which these are prepared.
Conclusion
A partial income statement is a specific purpose condensed short income statement that are prepared for a non-standard period for an accounting year. These statements are prepared in certain cases where operations have been discontinued; acquisition has been made during the accounting period and so on. Also, a partial income statement helps in serving the purpose of undertaking a detailed analysis of certain components of income statement ( in the form of a single step) or multiple components of income statement ( in the form of multi-step).
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