Other expenses are those expenses that non-operating in nature that does not have any relation with the main business operations and include expenses like interest expense, sale of assets, impairment and restructuring costs, etc.
Other Expenses Definition
These are expenses that do not relate to the company’s primary business and are considered the residual bucket in the Income Statement. In the Income statement, there various heads of expenses like Finance costs, Fees and commission expenses, Cost of Material Consumed, Impairment on financial instruments, Purchase of stock in trade, Employee benefits expenses, Depreciation, and 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., etc. All the expenses, which do not form part of the above heads, 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 –
- Rates and Taxes
- Tax Penalties
- Power and Fuel
- Consumptions of Spares
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 Mn, Rent- $ 32 Mn, Professional Fees – 127 Mn, Printing and stationery -$ 43 Mn, Depreciation & Amortization – $ 91 Mn, Cost of Materials – $ 1292 Mn, Advertisement Exp – $ 22 Mn, Interest Exp – $ 93 Mn.
= $ 32 Mn + $ 127 Mn + $ 43 Mn + $ 22 Mn
= $ 224 Mn
Thus, in the Income Statement of American Apparels, it will disclose as $ 224 Mn.
Example #2 Prudential Plc
Below are the expenses of Prudential Plc:
Benefits claim paid of £ 27411 Mn, Rent of £ 1184 Mn, 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. of £ 112 Mn, the Acquisition cost of £ 8855 Mn, Directors Commission of £ 55 Mn, the Interest cost of £ 410 Mn, Processing charges of £ 3421 Mn, Power and fuel of £ 143 Mn, Business Process outsourcing expense of £ 827 Mn, Cost of Row material consumed of £ 14132 Mn, Depreciation and amortization of £ 4229 Mn, Insurance ceded of £ 57 Mn, Rates and Taxes of £ 2 Mn, Trade Incentives of £ 39 Mn, Travelling and Conveyance of £ 32 Mn, Royalty paid of £ 23 Mn, Communication costs of £ 44 Mn, Exchange Difference of £ 78 Mn, Legal and Professional fees of £ 73 Mn, Loss on sale of assets of £ 52 Mn, Recovery of doubtful debts of £ 6 Mn, Repairs and Maintenance of Building of £ 105 Mn.
Mathematically, we represent it as,
We can calculate it as,
= £ 3421 Mn + £ 105 Mn + £ 6 Mn + £ 52 Mn + £ 827 Mn + £ 1184 Mn + £ 143 Mn + £ 55 Mn + £ 73 Mn + £ 2 Mn + £ 78 Mn + £ 112 Mn + £ 44 Mn + £ 23 Mn + £ 32 Mn + £ 39 Mn + £ 57 Mn
= £ 6253 Mn
Thus, in the income statement of Prudential Plc, it will disclose as £ 6253 Mn.
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., financial statement analysis will show different pictures than they actually exist in reality.
- Presenting expenses under a specific head has its own impact. Thus, one will need to check the impact of the presentation of any expense accurately.
- Based on the presentation in the income statement, additional disclosures will be applicable in notes to accounts.
Expenses and Revenues are the main base of the Income statement. Bifurcation, presentation, and measurement of all the components are of high importance and requires professional judgment. “Other expenses” under the Expenses show the major overheads for the business, which requires to be reduced to a greater extent in order to increases the profitability of the company. Every nation has its own set of guidelines which are needed to be followed for the annual financial statements.
This has been a guide to what is Other Expenses and its definition. Here we discuss the list of other expenses along with practical examples and explanations. You can learn more about accounting from the following articles –