The entity presents an analysis of expenses recognized in profit or loss using a classification based on the nature or function within the entity, whichever provides reliable and more relevant information. Entities are encouraged to present the analysis in a comprehensive income statement or in a separate income statement (if presented). Expenses are subclassified into major components of financial performance which can differ in frequency, potential gain or loss and predictability. This analysis is provided in one of two forms.
The first form of this analysis is the “nature of load” method. An entity aggregates expenses in profit or loss based on their nature (for example, depreciation, purchases of raw materials, transportation costs, employee benefits, and advertising costs), and does not reallocate them according to various functions within the entity. This method is easy to implement because it does not require load allocation according to functional classification. The second form of analysis is the “expense function” or “cost of sales” method and classifies expenses on the basis of their function as part of selling costs or, for example, the costs of distribution or administrative activities. At a minimum, the entity shall disclose costs of sales under this method separately from other expenses. This method can provide more relevant information to users of financial statements compared to the expense classification method based on nature, but the allocation of costs based on function may require arbitrary allocation and careful consideration.

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