The choice of classification between nature and function of expenses from ordinary activities depends on:
A) the size of the items that would be reported under the possible classifications.
B) the historical evidence about the probability of the items recurring.
C) the classification that provides information that is reliable and more relevant.
D) the classification that best reflects the way expenses vary directly or indirectly with the entity's level of activity.

Question

Quizplus · Accepted Answer

The classification that provides information that is reliable and more relevant is the most appropriate choice for classifying expenses between nature and function. This ensures that the financial statements provide useful information for decision making by users of the financial statements. Factors such as size of the items, historical evidence and the way expenses vary with the entity's level of activity may be considered, but the primary consideration should be the reliability and relevance of the information provided.

The Choice of Classification Between Nature and Function of Expenses