imputed cost meaning: What Is Imputed Income? Definition & Examples

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occupied housing

They are all recorded in the financial statements of an enterprise. A company may choose to include these costs as the cost of doing business as they represent potential revenue sources. Definitions of tacit expenses include loss of interest income on funds and equipment depreciation for a construction project. Suppose, a teacher decides not to utilize his services in any education institute rather become a home tutor.

opportunity cost

Imputed Costs are hypothetical notional costs which is not recorded in the books of accounts or which is not paid in cash or kind. This costs also refer as implicit costs or hidden costs which is not needed to report on the financial statement of the company as a separate costs. Imputed Costs also known as Notional Cost, hypothetical overhead which is also considered as opportunity costs.

More meanings of impute

Our experts suggest the best funds and you can get high returns by investing directly or through SIP. A below-market interest rate is an interest rate lower than that currently being offered for commercial loans extended by banks. Impute is a somewhat formal word that is used to suggest that someone or something has done or is guilty of something.

Imputed interest may therefore apply to loans among family and friends. For example, a mother loans her son $50,000 with no interest charges. The applicable short-term federal rate is 2 percent, so the son should pay his mother $1,000 annually in interest.

  • ClearTax offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India.
  • The usage of these assets generates expenses that are recorded on their books.
  • This article was all about the topic of Difference between Implicit cost and Opportunity cost, which is an important topic for Commerce students.
  • At it’s most useful, it is a way for managers to determine the various comparable alternatives of a decision.

This means that if you are required to pay taxes on the imputed interest on a loan, you cannot claim a deduction for that interest on your tax return. For example, if you use the loan proceeds to buy a primary residence or to fund a business or investment, you may be able to claim a deduction for the imputed interest on your taxes. It’s always best to consult with a tax professional if you have questions about whether you can claim a deduction for imputed interest on your taxes.

Effects of owner-occupancy

We’ll give you a definition and some examples of what counts as imputed income. When the investor considered the current price rate, his credit standing, the collateral, other terms of the note, and rates available for similar borrowings, a 12% interest rate is imputed. Opportunity cost is referred to as a potential benefit that an individual, business organisation or investor misses out when choosing an alternative option over another.


For example, if a firm occupies a building that it owns, it forgoes the opportunity of renting it out for some other use. These costs represent a loss of potential income, but not of profits. Implicit costs are a type of opportunity cost, which is the benefit that a company misses out on by choosing one option or alternative versus another.

Understanding Implicit Costs

That makes implicit prices synonymous with imputed values, while explicit costs are considered to be out-of-pocket costs. In such cases, the borrower may be required to pay taxes on the difference between the actual and imputed interest rates. There are several exemptions to these rules, including loans made for the purpose of buying a primary residence or funding a business or investment. The calculation of imputed interest is generally based on the difference between the actual interest rate and the market interest rate for a similar loan. Simply explained, imputed costs are the opportunity costs that a company incurs as a result of the use of its resources.

Expenditures that are attributable to the use of one’s own factor of production, such as the use of one’s own capital, are imputed costs. Let us look at some of the points of difference between implicit cost and opportunity cost. The comparison approach matches rents in tenant-occupied housing units to similar owner-occupied housing units.


A tangible imputed cost meaning is an asset that has a finite, transactional monetary value and usually a physical form. A capital asset is an asset with a useful life longer than a year that is not intended for sale in the regular course of the business’s operation. Imputed value, also known as estimated imputation, is an assumed value given to an item when the actual value is not known or available.

What is Imputed Costs? Definition, Example etc.

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In essence Cost of Capital is cost of equity funds & debts funds & inorder to accept a new project the Net present value of the project needs to be greater than Cost of Capital. This is done to prevent individuals from avoiding taxes by not charging or paying interest on loans. Accounting profit is a company’s total earnings, calculated according to generally accepted accounting principles . Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader.

Calculating Imputed Interest on a Zero-Coupon Bond

Imputed values are a logical or implicit value for an item or time set, wherein a “true” value has yet to be ascertained. Vikki Velasquez is a researcher and writer who has managed, coordinated, and directed various community and nonprofit organizations. She has conducted in-depth research on social and economic issues and has also revised and edited educational materials for the Greater Richmond area. We follow strict ethical journalism practices, which includes presenting unbiased information and citing reliable, attributed resources.

Imputed income is essentially benefits that employees receive that aren’t a part of their salary or wages. However, middle and lower management usually don’t have imputed cost as a factor when running operations. Imputed costs are a factor of concern in high level management where strategic decisions need to be made concerning the direction a company should move towards. For purposes of the company’s violations, the conduct of its officials and employees may be imputed to the firm. A cost center is a function within an organization that does not directly add to profit but still costs an organization money to operate. Imputed costs are hidden and do not involve an outlay of cash, therefore, not of primary importance in management budgeting policies, however, they are important to consider when deciding how to allocate resources.

An imputed cost, also known as an implicit cost, notional cost, or implied cost, opportunity cost and implied cost. This refers to the cost incurred when an asset that can be invested is used or is serving another purpose. An imputed cost is a hidden cost, it is often incurred when an asset is used for a particular purpose instead of assigning it another function. Imputed costs are not direct costs, they are incurred in an obscure or unseen manner.

It’s also important to let your know that penalties may apply if their withholding is insufficient. Fringe benefits are a way to compensate or give your employees beyond their regular wages. At it’s most useful, it is a way for managers to determine the various comparable alternatives of a decision. Missing data for employment status and deprivation were imputed with % free school meal.

This is because the benefit was already given in a non-monetary form. In such cases, when imputed costs are ignored, total costs appear to rise at a faster rate than they do in reality. This means that when a company allocates its resources, the ability to earn money from resource and use elsewhere is always forgotten, so there is no cash exchange. Simply put, an implicit cost stems from the use of an asset, rather than renting or purchasing it.

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Our work has been directly cited by organizations including Entrepreneur, Business Insider, Investopedia, Forbes, CNBC, and many others. Our team of reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications. At Finance Strategists, we partner with financial experts to ensure the accuracy of our financial content. Imputed cost is used in a narrower context and generally relates to the interval events of the organization. Any opinions in the examples do not represent the opinion of the Cambridge Dictionary editors or of Cambridge University Press or its licensors. As with a genealogy, the earlier manifold faith-based features imputed to ‘ mestizos ‘ were not simply displaced by notions of ‘ racial mixture ‘ dictated by rational science.

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