Extraordinary Item

Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority and you can order it here)                  

A material event or transaction that is both unusual in nature and infrequent in occurrence.  To be unusual in nature, the underlying event or transaction must have a high degree of abnormality and be clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the entity, taking into account the environment in which the entity operates.  Infrequency of occurrence relates to the requirement that the underlying event or transaction should be of a type that would not reasonably be expected to recur in the foreseeable future, taking into account the environment in which the entity operates.  The material effect of individual events or transactions is considered separately and not aggregated unless the effects result from a single identifiable transaction or event that meets the definition of an extraordinary item.

Extraordinary items could result if gains or losses were the direct result of any of the following events or circumstances:

1.  A major casualty, such as an earthquake.

2.  An expropriation of property by a foreign government.

3.  A prohibition under a newly enacted law or regulation.

The INCOME STATEMENT should disclose captions and amounts for individual extraordinary events or transactions on the face of the statement.  Income taxes applicable to the extraordinary item should be disclosed.  Extraordinary items can be reported as follows:

Income before extraordinary items                          $XXX

Extraordinary items

(less applicable income taxes of $XXX)                 $XXX

Net income                                                                  $XXX

A material event or transaction that is unusual in nature or occurs infrequently is reported as a separate element of income from continuing operations and is not classified as an extraordinary item.

Back to Information