Classification of income and expenses

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Classification of income and expenses

Classification is applied to: a) income and expenses resulting from the unit of account selected for an asset or liability; or

components of such income and expenses if those components have different characteristics and are identified separately. For example, a change in the current value of an asset can include the effects of value changes and the accrual of interest .

It would be appropriate to classify those components separately if doing so would enhance the usefulness of the resulting financial information. -

Profit or loss and other comprehensive income Income and expenses are classified and included either: a) in the statement of profit or loss; or b) outside the statement of profit or loss, in other comprehensive income.

Aggregation - Aggregation is the adding together of assets, liabilities, equity, income or expenses that have shared characteristics and are included in the same classification. -

Aggregation makes information more useful by summarizing a large volume of detail.

However, aggregation conceals some of that detail. Hence, a balance needs to be found so that relevant information is not obscured either by a large amount of insignificant detail or by excessive aggregation. -

Different levels of aggregation may be needed in different parts of the financial statements. For example, typically, the statement of financial position and the statement(s) of financial performance provide summarized information and more detailed information is provided in the notes.

Capital maintenance concepts Financial capital maintenance With the financial concept of capital maintenance,

 

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is important to identify and classify the components of income and expenses if they have different characteristics as this can provide more useful information for financial statement users. For example, changes in the value of assets may include both value changes and the accrual of interest, and presenting these components separately can help users better understand the underlying factors affecting the financial position of the entity.

The classification of income and expenses into profit or loss and other comprehensive income is also important for financial statement users. Profit or loss represents the entity's transactions and events that have occurred during the reporting period, while other comprehensive income represents items that have not been recognized in profit or loss but are still relevant to the financial position of the entity.

Finally, the aggregation of assets, liabilities, equity, income, or expenses that have shared characteristics and are included in the same classification can provide a more meaningful picture of the financial position and performance of the entity. Aggregation can help to simplify financial statements and make them more understandable for users