Income Statement Components for Service Businesses

Steps:

• Classify the business: Accountancy firm is a service provider, focusing on fees as revenue.
• List core elements: Revenue minus direct costs yields gross profit; total expenses lead to net result.
• Evaluate gross profit: Included as fees minus variable costs like subcontracting.
• Assess final lines: Profit for the year is the net profit; surplus reflects undistributed profits in partnerships common for accountancy firms.

Why C is correct:

• Per IAS 1 Presentation of Financial Statements, income statements show gross profit (revenue less cost of sales/services) and profit for the year (net profit/loss); surplus appears as the period's undistributed profit in service partnerships.

Why the others are wrong:

• A: Fails to mark profit for the year clearly and excludes surplus needed for partnership formats.
• B: Excludes gross profit, essential for cost analysis in services, and misincludes surplus without basis.
• D: Omits gross profit and surplus, ignoring direct cost deductions and partnership profit distribution.

Final answer: C