Other Expenses

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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 Depreciation, amortization, 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 turnover percentage, the same may need to be disclosed separately.

Other Expenses Definition

Other expenses refer to those that are non-operating and not concerned with the primary business operations, e.g., interests, sales of assets, impairments and restructuring costs, etc.
Rent, repairs, insurance, rates and taxes, tax penalties, power and fuel, and consumptions of spares are the list of other expenses based on the industry and business nature.
Under the expenses, "Other expenses" represents the significant overheads for the business that may be reduced to a greater extent to boost the company's profitability.

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 the business –

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 auditors - £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 analysis, 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 statement. 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.

Frequently Asked Questions (FAQs)

Where does other expenses go on the income statement?

Other expenses should be mentioned on the balance sheet of the company. Instead, they indirectly come on the company's balance sheet.

Are other expenses included in operating expenses?

The term "operating costs" describes the ongoing costs associated with regular corporate operations. These costs include Selling, General, and Administrative (SG&A) expenses as well as other operating costs, often known as Costs of Goods Sold (COGS).

What qualifies as other expenses on Schedule C?

A detailed bifurcation of "other" expenses is listed on line 48 of Form 1040 Schedule C. The total is recorded on line 27. The other Schedule C expenses involve amortizing specific costs like pollution-control facilities, research and experimentation, and intangibles, including goodwill.

Does EBITDA include other expenses?

EBITDA removes business from the core business operations to discuss the company's profitability.