Study Unit 4.2 - Extraordinary Items

Question 1

What is an Extraordinary Item? Define it.

Answer 1

Extraordinary Item - is a material transaction or event that is:

• Unusual in Nature and
• Infrequent in occurrence

in the environment in which the entity operates.

Question 2

What are the two key things that makes an Extraordinary Item?

Answer 2

The event has to be:

• Unusual in Nature and
• Infrequent in occurrence

Question 3

What make a transaction or event Unusual? List an example

Answer 3

A transaction or event is Unusual if:

• It has a high degree or abnormality
• Is of a type clearly unrelated to, or
• Only incidentally related to, the ordinary and typical activities of the entity.

An Example of this would be:

• A warehouse fire, which is clearly unrelated to an entity’s ordinary and typical activities

Question 4

What make a transaction or event Infrequent? List an example?

Answer 4

A transaction or event is infrequent if:

• It is not reasonably expected to recur in the foreseeable future.

An Example would be:
An earthquake in Florida (but not in California) is not reasonably expected to recur.

Question 5

True or False? Sometimes a pronouncement specifically classifies an item as extraordinary even if these criteria are not met.

Answer 5

True.

Question 6

List 6 Items that are not considered Extraordinary Items?

Answer 6

The following are examples of items that are not Extraordinary:

1) Write-Downs of receivables,
- Inventories,
- Intangibles Assets, etc.

2) Gains and losses from exchanges or
- Translation of foreign currencies,
including those resulting from major
devaluations and revaluations.

3) Gain and Losses on disposal of a component of an entity
4) Other gains and losses from sale or Abandonment of property, plant, and equipment used in business
5) Effects of a strike, including those against competitors and major suppliers
6) Adjustments of accruals on long-term contracts

Question 7

There are two items that are usually considered Extraordinary event or transactions, but in some rare cases, gains and losses such as these two, may be classified as extraordinary:

Answer 7

The two exceptions that can be classified as an extraordinary item are:

1) Write-Downs of receivables,
- Inventories,
- Intangibles Assets, etc.

4) Other gains and losses from sale or Abandonment of property, plant, and equipment used in business

Question 8

The gains or losses that qualify as an extraordinary item are: List the 3 characteristics.

Answer 8

The gains or losses that qualify are those directly resulting from a(n)

1) Major Casualty (e.g. Flood)
2) Expropriation or
3) Prohibition under a new law or regulation

Question 9

True or False? Adjustments of estimate included in the extraordinary items previously reported are separately presented and disclosed in the current statements. They are classified the same way as the original items.

Answer 9

True

Question 10

How should extraordinary items be reported on the income statement? List two ways.

Answer 10

Primary way:
Extraordinary items should be reported individually in a separate section in the income statement:

• Net of Tax
• After results of Discontinued Operations

Secondary Way (optional)
Disclosure in the NOTES  of individual items included in this section is acceptable.

Question 11

How are basic and Diluted EPS amounts for extraordinary items presented.

Answer 11

Basic and Diluted EPS amounts for extraordinary items presented on:

• The face of the income statements or
• In the notes.

Question 12

True or False? If a material transaction or event is: Unusual or Infrequent but not both than it is extraordinary item.

Answer 12

False:
If a material transaction or event is: Unusual or Infrequent but not both than it is NOT an extraordinary item.

The reason why is because: both of those qualifiers need to be met in order for it to be recorded as an extraordinary item.

Question 13

As far as Extraordinary Items are concerned, what is the difference between GAAP and IFRS?

Answer 13

In GAAP, Extraordinary items can be reported if certain criterias are met.

In IFRS - No Items are classified as Extraordinary, either on

• The face of the income statement or
• Comprehensive Income or
• In the Notes

Question 14

What does the Acronym: I. D. E., represent when it comes to remembering how Extraordinary items are presented on the Income Statement:

• I
• Do
• Excel

Answer 14

The Acronym I.D.E represent the following:

I = Income from Continuing Operations
D = Discontinued Operations
E = Extraordinary Items