CFA Level I · CFA Level I Exam · Analyzing Income Statements
An analyst compares two companies. Company X presents expenses by function and Company Y presents expenses by nature. Which line item is most likely to appear on Company Y's income statement but not on Company X's?
Employee benefits expense is most likely to appear only for Company Y. Presentation by nature lists expenses by type such as employee costs and depreciation, while presentation by function groups costs by activity such as cost of sales. Revenue appears under both formats.
- ACost of sales
- BRevenue
- CEmployee benefits expenseCorrect
Explanation
Presentation by nature groups expenses by type, such as employee benefits, depreciation and raw materials. Presentation by function groups them by activity, such as cost of sales, so cost of sales is typical for Company X. Revenue appears in both.
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