One off expenses

[MindFull]

Hi Mark,
I had a question regarding one-off expenses. I know generally they should be excluded but I noticed that the purchase of software (administration systems) are usually amortised. Why doesn't software count as a non recurring, exceptional expense?
Thanks.

 

[Mark Willder]

Hi Mark,
I had a question regarding one-off expenses. I know generally they should be excluded but I noticed that the purchase of software (administration systems) are usually amortised. Why doesn't software count as a non recurring, exceptional expense?
Thanks.

Hi Jem

Many IT costs are rare but will occur again in the future. The IT is paid for now, but expected to be used for many years. So it makes sense to spread the cost over the likely useful life. This might include purchasing hardware, such as a new mainframe computer or servers, or software such as operating systems. If we excluded these costs then we wouldn't be charging for these significant costs.

Exceptional items are costs that we don't expect to see again. Examples might include the cost of a demutualisation, the cost of a major regulatory change such as gender neutral pricing or the introduction of data protection rules. Pages 21 and 22 in Chapter 30 make the comment that although any given exceptional item is unlikely to be repeated, different exceptionals are happening fairly regularly. However, each must be treated on its own merits so that the expense analysis is unlikely to give an accurate prediction of future costs, eg the cost of the demutualisation will tell us nothing about the cost of the next big regulatory change.

Best wishes

Mark

 

[MindFull]

Thanks Mark!