Venus Cellular
MODULE 10 CASE SOLUTION CRITIQUE
Venus Cellular
COMPREHENSIVE INCOME
Question 1: Identify whether the analysis of expenses in profit or loss is presented by nature or function.
In accordance with IFRS, presentation of financial information in the statement of profit or loss requires that expenses be classified based on either their nature or function within the operation. IAS 1.99 states that “an entity shall present an analysis of expenses recognized 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.” IAS 1.101 further explains, “expenses are sub classified to highlight components of financial performance that may differ in terms of frequency, potential for gain or loss and predictability. This analysis is provided in one of two forms.” The first form of analysis, by ‘nature of expense’, is defined in IAS 1.102. Under this method, “an entity aggregates expenses within profit or loss according to their nature, and does not reallocate them among functions within the entity.” Examples of classification by nature include depreciation, purchases of materials, transport costs, employee benefits, and advertising costs. Because there is no allocation of expenses by function, the application of this method tends to be more simplistic. Upon observation, we recognize that this is not the prevailing method utilized in the preparation of the statement of profit or loss by Venus Cellular.
The presence of the ‘cost of sales’ in this statement highlights the distinguishing factor in the presentation of the statement of profit or loss using the ‘function of expense’ or ‘cost of sales’ method of presentation. IAS 1.103 states, “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 cost distribution or
Venus Cellular
COMPREHENSIVE INCOME
Question 1: Identify whether the analysis of expenses in profit or loss is presented by nature or function.
In accordance with IFRS, presentation of financial information in the statement of profit or loss requires that expenses be classified based on either their nature or function within the operation. IAS 1.99 states that “an entity shall present an analysis of expenses recognized 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.” IAS 1.101 further explains, “expenses are sub classified to highlight components of financial performance that may differ in terms of frequency, potential for gain or loss and predictability. This analysis is provided in one of two forms.” The first form of analysis, by ‘nature of expense’, is defined in IAS 1.102. Under this method, “an entity aggregates expenses within profit or loss according to their nature, and does not reallocate them among functions within the entity.” Examples of classification by nature include depreciation, purchases of materials, transport costs, employee benefits, and advertising costs. Because there is no allocation of expenses by function, the application of this method tends to be more simplistic. Upon observation, we recognize that this is not the prevailing method utilized in the preparation of the statement of profit or loss by Venus Cellular.
The presence of the ‘cost of sales’ in this statement highlights the distinguishing factor in the presentation of the statement of profit or loss using the ‘function of expense’ or ‘cost of sales’ method of presentation. IAS 1.103 states, “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 cost distribution or