Question

For a reformulated income statement. Is "Non service related post retirement costs" considered a non operating expense or operating expense ? I am trying to calculate the net financial expense before tax and oci. I am not sure if I should subtract the post retirement costs from the Interest (income) expense, net given. Please help.

Answer 1

Non-operating expenses are often considered to be the cost that a company must incur to fulfil certain monetary obligations. Other than that, these expenses are said to play a vital role when it comes to ascertaining the net earnings of a firm during any given period.

Essentially, non-operating expenses meaning can be explained as those costs which are not related to a firm’s core operations and are recorded in the income statement. Typically, one can subtract these expenses from a firm’s operating profits to ascertain its potential earnings.

Also, such expenses are known as peripheral or incidental expenses and tend to include recurring expenses like interest payments, cost of currency exchange, etc. Nevertheless, non-operating expenses often include costs which are somewhat uncommon and irregular in occurrence. For instance, costs incurred during restructuring or reorganising, charges levied on obsolete inventory, etc. are often treated as non-operating expenses.

It must be noted that recording non-operating expenses separately comes in handy for both stakeholders and potential investors. It helps them to gain a clear and detailed picture of the firm’s financial obligations and helps to estimate potential earnings.

Depending upon the type of industry, a company may incur several types of non-operating expenses. Here are some of the most common non-operating expenses examples –

• Interest expense
• Obsolete inventory charges
• Derivatives expense
• Restructuring expense
• Loss on disposition of assets
• Damages Caused to Fire
• Floatation cost
• Lawsuit settlement expenses
• Write-down of receivables or inventory
• Write-off of intangible assets
• Expropriation of property
• Altered accounting principles
• Discount on the issuance of shares and debentures
• Amortisation of preliminary expenses.

Regardless, to understand the components of non-operating expenses and their extent successfully, individuals must also become familiar with the exclusions. In simple words, costs resulting directly from core activities are not included in non-operating expenses list.