91Ó°ÊÓ

In accounting, the term expense refers to the cost incurred by a business entity for acquiring goods or services that further facilitate generating revenues. Expenses are deducted from the income to obtain actual profit or loss.

The nature-of-expense method facilitates the business concerns to bifurcate the respective expenses into related categories. For instance, costs related to materials are classified under raw materials. IFRS does not require the functional classification of the expenses.

The function-of-expense method requires arbitrary allocations associated with different expenses. Also, the function-of-expense method combines the items linked with expenses according to the respective activities. IFRS does not specify the approach businesses use but allows them to choose any suitable method.