Question

An advantage of the nature-of-expense method under IFRS is that it:

a. Matches expenses with related revenues.
b. Simplifies financial reporting.
c. Front-loads expenses.
d. Reduces the need for disclosure in financial statements.

Answer 1

The nature-of-expense method under IFRS matches expenses with related revenues, providing a more accurate representation of a company's financial performance.

Step-by-step explanation:

An advantage of the nature-of-expense method under IFRS is that it matches expenses with related revenues. This method ensures that expenses are recognized in the same period as the revenue they contribute to. For example, if a company generates revenue from the sale of its products in a particular month, the expenses associated with producing those products, such as raw materials and labor costs, will also be recognized in the same month. This helps in providing a more accurate representation of the company's financial performance.

In contrast, other methods like the classification of expenses can result in delays or differences in recognizing expenses and revenues. For instance, if a company uses the classification of expenses method, it may recognize some expenses in a different period than the corresponding revenue. This could lead to distorted financial statements and a misrepresentation of the company's true financial performance.