Other expenses are those expenses that are non-operating and do not have any relation with the main business operations. These include interests, sales of assets, impairments and restructuring costs, etc.
Other Expenses Definition
These expenses do not relate to the company’s primary business and are considered the residual bucket in the Income Statement. In the income statement, there are expenses like finance costs, fees and commission expenses, cost of material consumed, impairment on financial instruments, purchase of stock in trade, employee benefits expenses, DepreciationDepreciationDepreciation is a systematic allocation method used to account for the costs of any physical or tangible asset throughout its useful life. Its value indicates how much of an asset’s worth has been utilized. Depreciation enables companies to generate revenue from their assets while only charging a fraction of the cost of the asset in use each year. read more, amortizationAmortizationAmortization of Intangible Assets refers to the method by which the cost of the company's various intangible assets (such as trademarks, goodwill, and patents) is expensed over a specific time period. This time frame is typically the expected life of the asset.read more, etc. Therefore, all the expenses, which do not form part of the above, will be part of it.
As per the statutory guidelines, if it is more than the specified percentage of turnover, the same may be needed to be disclosed separately.
List of Other Expenses
There is not an exhaustive list that specifies it. However, the list of other expenses may include the following depending on the industry and nature of business –
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For eg:
Source: Other Expenses (wallstreetmojo.com)
- Rent
- Repairs
- Insurance
- Rates and Taxes
- Tax Penalties
- Power and Fuel
- Consumptions of Spares
Examples
Let’s see some simple examples to understand it better.
Example #1 American Apparel, Inc
Below are the various expenses of American Apparels:
- Salary and wages- $692 million
- Rent- $32 million
- Professional fees – $127 million
- Printing and stationery – $43 million
- Depreciation & amortization – $91 million
- Cost of materials – $1,292 million
- Advertisement expenses – $22 milion
- Interest expenses – $93 million.
Solution:
We can calculate it as,
= $32 million + $127 million + $43 million + $22 million
= $224 million
Thus, in the income statement of American Apparels, it will disclose as $224 million.
Example #2 Prudential Plc
Below are the expenses of Prudential PLC:
- Benefits claim paid – £27,411 million
- Rent – £1,184 million
- Payment to auditorsAuditorsAn auditor is a professional appointed by an enterprise for an independent analysis of their accounting records and financial statements. An auditor issues a report about the accuracy and reliability of financial statements based on the country's local operating laws.read more – £112 million
- Acquisition cost – £8,855 million
- Directors commission – £55 million
- Interest cost – £410 million
- Processing charges – £3,421 million
- Power and fuel – £143 million
- Business process outsourcing expense – £827 million
- Cost of raw material consumed – £14,132 million
- Depreciation and amortization – £4,229 million
- Insurance ceded – £57 million
- Rates and taxes – £2 million
- Trade incentives – £39 million
- Travelling and conveyance – £32 million
- Royalty paid – £23 million
- Communication costs – £44 million
- Exchange difference – £78 million
- Legal and professional fees – £73 million
- Loss on sale of assets – £52 million
- Recovery of doubtful debts – £6 million
- Repairs and maintenance of building – £105 million.
Solution :
Mathematically, we represent it as,
Processing charges + Repairs and maintenance + Recovery of doubtful debts + Loss on sale of Assets + Business process outsourcing expense + Rent + Power and fuel + Directors commission + Legal and professional expense + Rates and taxes + Exchange differences + Payment to auditors + Communication costs + Royalty paid + Travelling and conveyance + Trade incentives + Insurance
We can calculate it as,
= £3,421 million + £105 million + £6 million + £52 million + £827 million + £1,184 million + £143 million + £55 million + £73 million + £2 million + £78 million + £112 million + £44 million + £23 million + £32 million + £39 million + £57 million
= £6,253 million
Thus, in the income statement of Prudential Plc, it will disclose as £6,253 million.
Important Points to Note
Other Expenses are not directly related to the business but are ancillary in nature.
- It is of utmost importance to accurately bifurcate the expenses as per the prescribed guidelines and based on the nature of the business. If expenses are not bifurcated correctly, the ratio analysisThe Ratio AnalysisRatio analysis is the quantitative interpretation of the company's financial performance. It provides valuable information about the organization's profitability, solvency, operational efficiency and liquidity positions as represented by the financial statements.read more, financial statement analysis will show different pictures than they exist in reality.
- Presenting expenses under a specific head has its impact. Thus, one will need to accurately check the impact of any expense.
- Based on the presentation in the income statement, additional disclosures will apply in notes to accounts.
Conclusion
Expenses and revenues are the main base of the Income statementThe Main Base Of The Income StatementThe income statement is one of the company's financial reports that summarizes all of the company's revenues and expenses over time in order to determine the company's profit or loss and measure its business activity over time based on user requirements.read more. Bifurcation, presentation, and measurement are the components of high importance and require professional judgment. “Other expenses” under the expenses show the major overheads for the business, which must be reduced to a greater extent to increase the company’s profitability. Every nation has its own set of guidelines needed for the annual financial statements.
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