Extraordinary Unusual and Infrequent Items Flashcards
Extraordinary Items
Extraordinary items are both unusual and infrequent in occurrence reported below the line net of taxes
Although extraordinary items do not affect income from continuing operations and analyst may want to review them to determine whether some portion should be included when forecasting future income
Example Extraordinary Items
Example:- Losses from an expropriation of assets or uninsured losses from natural items .
What is the position of Extraordinary Items in the income statement ?
Below the line means after net income from continuing operations but before net income
Extraordinary items are reported separately in the income statement net of tax after income from continuing operations
Extraordinary Items Reporting
Is it same in IFRS and US GAAP
No
Extraordinary Items :- US GAAP
The treatment of extraordinary items differs between US GAAP and IFRS
Under US GAAP extraordinary items are reported net of tax below income from continuing operations
Extraordinary Items :- IFRS
IFRS does not permit firms to treat transactions as extraordinary in the income statement
IFRS does not allow extraordinary treatment in the income statement
Name one extraordinary item which is unusual and infrequent as well and what is its position in the income statement ?
Extraordinary items such ad ex proportions are unusual and infrequent and appear below the line
Unusual and Infrequent Items
Unusual or infrequent items are unusual or infrequent but not both .
These items are reported as separated line item as a component of net income from continuing operations that must be removed if not deemed to be component of persistent income
What is the postion of Unusual and Infrequent Items in the income statement ?
They are reported above the line before taxes
Unusaual and Infrequent Items :- Examples
Example includes
1: - Provision for environment remediation
2: -Gains and Losses from the sale of assets or part of business ( that do not qualify as discontinued operations ) or investment in subsidiaries
3: -Impairment,write-offs ,write-downs and restructuring costs
4: -Integration expense associated with business that have been recently acquired
5: -Gain or losses from disposal of business segment (employee separation costs,plant shutdown cost etc
All the following items are reported net of taxes below net income from continuing operations on the income statement EXCEPT:
A) extraordinary items.
B) unusual or infrequent items.
C) expropriations by foreign governments.
- Unusual or infrequent items appear as a component of net income from continuing operations and are reported “above the line.” Extraordinary items, such as expropriations, are unusual and infrequent and appear “below the line.”
Which of the following is least likely reported net of tax on the income statement under U.S. GAAP?
A) Income from discontinued operations.
B) Interest expense.
C) Extraordinary items.
- Interest expense would be considered an expense that is incurred from continuing operations and, therefore, is listed prior to subtracting the income tax expense on the income statement. Income from discontinued operations and extraordinary items are included on the income statement after the net income from continuing operations is reported and after the income tax expense from continuing operations is reported. Therefore, these latter accounts are reported net of tax.
Which of the following statements regarding the income statement is least accurate?
A) Extraordinary items are both unusual in nature and infrequent in occurrence. Extraordinary items are disclosed net of taxes after income from continuing operations in the income statements.
B) The results of discontinued operations are reported below income from continuing operations on the income statement net of taxes.
C) Items that are unusual in nature or infrequent in occurrence appear below income from continuing operations on a pretax basis.
- The key word here is “or.” Unusual or infrequent items are unusual or infrequent, but NOT both. These items are reported (as a separate line item) as a component of net income from continuing operations
Examples of unusual or infrequent items include:
• Gains or losses from the disposal of a business segment (employee separation costs, plant shutdown costs, etc.)
• Gains or losses from the sale of assets or investments in subsidiaries
• Provisions for environmental remediation
• Impairments, write-offs, write-downs, and restructuring costs
• Integration expenses associated iwth businesses that have been recently acquired.
Which of the following items regarding the corporate income statement is most accurate?
A) Examples of extraordinary items include expropriations of property and equipment by foreign governments, losses from earthquakes and tornados, and gains from the sale of investments in subsidiaries.
B) Unusual or infrequent items appear in the income statement of a corporation as a component of net income from continuing operations.
C) If a corporation disposes of a business segment that is separable from the company’s core business activities, the results of the discontinued segment are reported as a separate line item below income from continuing operations on a pre-tax basis.
Explanations for incorrect answers are as follows:
• The gain on the sale of a subsidiary is an unusual or infrequent item.
• The results of a discontinued segment are reported below the line, net of tax (after tax).
To be classified as an extraordinary item on the income statement under U.S. GAAP, the item must be:
A) unusual in nature and infrequent in occurrence.
B) probable and infrequent in nature.
C) estimated and probable.
Extraordinary items are unusual and infrequent events that are reported separately, net of tax “below the line.” Examples are expropriations by foreign governments and uninsured losses from earthquakes, eruptions, and tornadoes.
