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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.
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- 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)
Other expenses should be mentioned on the balance sheet of the company. Instead, they indirectly come on the company's balance sheet.
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).
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.
EBITDA removes business from the core business operations to discuss the company's profitability.
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