6.4 Departmental other expenses
6.4.1 Introduction
The Act (section 2) defines other expenses as "any expenses incurred by the Crown, a department, or an Office of Parliament that are other than:—
- output expenses;
- benefits or related expenses; or
- borrowing expenses.
The Act (section 2) states that output expenses "(a) includes the full cost of producing and supplying outputs measured in accrual accounting terms and (b) includes the full allocation of overhead costs".
Departmental Other Expenses are therefore costs which are not incurred by a department in the production of its outputs. Generally, all costs incurred in the normal course of a department's business (i.e. output production) will be output expenses. The fact that a cost is unusual, unexpected or large does not, by any or all of those reasons only, mean that it is precluded from being defined as an output expense.
The Other Expense appropriation exists because there are a number of costs which could not reasonably be associated with the production of outputs (and would normally result in a loss of value to the "owner"). Therefore, the key factor in determining whether an expense must be classified as an output expense or an Other Expense is whether the expense was incurred for the production of outputs or for other non-output related activities. This factor will result in some expenses being considered output expenses under certain circumstances and Other Expenses in other cases.
Examples of this are discussed in the following sections.
6.4.2 Loss on sale of assets
Losses arising from the sale of standard items of property, plant and equipment (for example photocopiers and fleet vehicles) must be treated as an output expense, because the loss arose out of the normal replacement or upgrade of an item of property, plant and equipment. However losses arising from the sale of surplus assets (because for example the department is no longer producing certain outputs as a result of restructuring) must be treated as an Other Expense, because the loss does not relate to the goods and services the department is currently producing.
6.4.3 Asset devaluations
Asset devaluation expenses (where there are insufficient revaluation reserves) must generally be considered output costs because departments will normally only hold assets necessary for the production of their outputs. Where a department considers asset devaluations to be Other Expenses the onus is on departments to demonstrate that the asset devaluation expenses relate to non-output assets and therefore are to be considered Other Expenses.
6.4.4 Restructuring expenses
For restructuring costs to be considered an Other Expense, they would need to relate to decisions by the Government that departments cease producing (or being responsible for producing) certain outputs. Minor adjustments to staffing numbers or alterations to the resource mix used to produce an output (for example contracting out versus in-house production) do not constitute restructuring costs for Other Expense purposes.
Restructuring expenses (whether they are output costs, or Other Expenses, or both) must be recognised by way of a provision when a liability arises. In most cases this will be when a final decision to restructure is made and announced. The provision for restructuring costs must reflect the total costs of the restructuring irrespective of when the restructure is to take effect or payments are to be made.
6.4.5 Asset write-off and impairment expenses arising from natural disasters.
Expenses arising from asset write-offs and impairments which have been incurred as a result of a natural disaster should be treated as departmental other expenses. However, there could be some instances where these expenses may be considered as part of the departmental outputs. In these circumstances, the onus is on departments to prove it is appropriate to treat these expenses as output costs rather than as a departmental other expense.
6.4.6 Disclosure of other expenses
Departments must disclose the nature of other expenses in a note to the financial statements.
6.4.7 Summary
In summary, departmental Other Expenses are likely to include:
- loss on sale of assets where this arises from the sale of assets made surplus from decisions by the government to cease producing certain outputs
- asset devaluation expenses where these relate to non-output items
- restructuring costs, but only where these relate to decisions to cease producing certain outputs; and
- asset write-off and impairment expenses arising from natural disasters.
