In establishing the classification of items in the statement of profit and loss,the size of an item is an appropriate basis for establishing a separate classification (by nature or function)for it.

Question

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The size of an item is not an appropriate basis for establishing a separate classification in the statement of profit and loss. The proper basis for classification is either by nature or by function. By nature means grouping transactions according to their characteristics, such as revenue or expenses. By function means grouping according to their purpose, such as operating expenses or financing expenses.

In Establishing the Classification of Items in the Statement of Profit