IAS 1 : Expenses recognised in profit or loss using a classification based on either their nature or their function
An entity shall present an analysis of expenses recognised in profit or loss using a classification based on either their nature or their function within the entity, whichever provides information that is reliable and more relevant.
The first form of analysis is the ‘nature of expense’ method.An example of a classification using the nature of expense method is as follows:
| Revenue | x | |
| Other income | x | |
| Changes in inventories of finished goods and work in progress | x | |
| Raw materials and consumables used | x | |
| Employee benefits expense | x | |
| Depreciation and amortisation expense | x | |
| Other expenses | x | |
| Total expenses | (x) | |
| Profit before tax | x |
The second form of analysis is the ‘function of expense’ or ‘cost of sales’ method and classifies expenses according to their function as part of cost of sales or, for example, the costs of distribution or administrative activities. An example of a classification using the function of expense method is as follows:
| Revenue | x |
| Cost of sales | (x) |
| Gross profit | x |
| Other income | x |
| Distribution costs | (x) |
| Administrative expenses | (x) |
| Other expenses | (x) |
| Profit before tax | x |