How expense classification affects gross margin, cost allocation, note disclosures and mixed presentation.
Luca Briefs1/8
Expense presentation
Your expense grouping changes what readers see
Presenting expenses by nature or by function affects comparability and the quality of information available to users.
By nature
Group expenses by type
1Staff costs.
2Depreciation.
3Professional fees.
By function
Group expenses by their business role
1Cost of sales.
2Selling and distribution.
3Administrative expenses.
Quick check
Does functional presentation need extra disclosure?
Yes
Under IAS 1, entities presenting by function must also disclose information about the nature of expenses in the notes. Presenting cost of sales also shows gross margin.
Shared costs
Allocation can distort the comparison
A rented premise may serve both showroom and back office. Putting all shared costs in administration can make administrative costs look high and selling costs artificially efficient.
Information quality
Allocation methods are left to you
The standards set no detailed allocation methods, so a weak allocation lowers the quality of the information users receive.
Mixed presentation
Mixing still requires judgement
Views differ on mixing under IAS 1. IFRS 18 permits it for financial years beginning in 2027, subject to assessing which approach provides the most useful structured summary.
