Extraordinary Items

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Extraordinary Items

These are the kinds of items which do not occur in a usual manner. In the course of accounting terms, these are the categories of expenses which are being considered to be infrequent, unusual or insignificant in size. As these items do not take place on the frequent basis, the organization is being involved in the category wherein, these items are being separated from operating activities. 

The items include material events and transactional events in the course of profit and loss statement is taken into consideration by the organization at a particular point in time. These items are being reported net of related tax effects in a separate section in the income statement of the organization. These are being reported after income from continuing operations. The usage of extraordinary items has been recently eliminated under the concept of Generally Accepted Accounting Principles. 

Examples of Extra Ordinary Items

a.       Loss as a result of destruction in case of a natural calamity

b.      Loss related to any kind of strike 

c.       Gain in the sale of property 

d.      Gain from life insurance 

e.       Gain in debt restructuring 

f.       Writing off intangible assets 

g.      Prohibition regarding new regulations 

Disclosure of Extra ordinary Items

            Extraordinary are being disclosed in a separate way in the income statement of the organization. The expenses are being excluded and tax is also being deducted from extra ordinary items. The explanation of extra ordinary items is being made by the organization in the foot notes of the financial statements being prepared in the annual report being prepared by the organization. 

            Information regarding earnings per share is also being provided by the organization for the extra ordinary items which are being shown in the income statement of the organization. In most of the cases, these items are being considered as operating expenses. It happens rarely when the extra ordinary items are required to be mentioned by the organization as these expenses do not occur at frequent levels by it at a particular point of time in the area of doing the tasks. 

·         Extra ordinary items are required to be disclosed in the statement of profit and loss account or income statement as a part of net profit and loss statement of the organization. 

·         The nature and amount of items is different in comparison to the items being shown by the organization in the course of the information being provided regarding the financial statements. 

·         If there are any kinds of changes in accounting methods and policies then the same are also being required to be shown in a separate manner. 

Accounting Treatment

            In the picture provided below, the manner in which accounting treatment of extra ordinary items is required to be made has been provided. 

In the course of income statement of the organization, the first step is to mention the net sales being generated by the organization. After entering net sales, the cost of products sold are being deducted. After deduction of the cost of goods sold, gross profit of the organization is being determined. After this, the organization reduces the expenses being incurred, and then, net income from operations is being determined. The organization then deducts the discontinued operations and extra ordinary items from the organizational financial statements so that, proper results are being generated. After deduction of the same, the net income of the organization is being identified. Earnings per share of the organization are being calculated after dividing the net income from the number of equity shares being distributed to the organizational shareholders. 

Practical Example of Extra Ordinary Losses

ABC Ltd. Co. has income before tax and extraordinary item of $2,50,000. It suffers an extraordinary loss from a major casualty of $1,00,000 (30 per cent tax rate). The loss provides a positive tax benefit. Prepare an income statement.


Here, income tax of $75000 was being deducted from the income before income tax and extra ordinary items for calculation of net income before extra-ordinary items. In the next step, there is deduction being made regarding extra ordinary loss and income reduction is being made. Therefore, the net income of the organization would be $105000. 

Extra-Ordinary Item under IFRS

International Financial Reporting Standards do not make use of the concept of extra ordinary items. All the items being disclosed in the income statement were being included as revenue, expenditure, profits or losses. The International Accounting Standards Board also does not recognize extra ordinary items under IFRS rules 2002. 

Extra-Ordinary Items under GAAP

In case of GAAP, the extra-ordinary items are being disclosed in the income statement of the organization for the purpose of tax implications. These items are being shown separately in the statement and disclosure of the same is being made in the notes for the purpose of providing a true and fair picture of the company. FASB states that, unusual and infrequent items are being considered to be extra ordinary items and the same are being shown in the income statement. 

Discontinued Operations

Discontinued operations are includes the operations which have been removed from discontinuing operations as a part of the company. It is being different in comparison to extra ordinary items. 

Rules in Discontinued Operations: In case of taxation, only the continued operations of the organization are taxable. The discontinued operations are not being included in the tax zone. It is crucial for the organization to make sure that disclosure of the discontinued operations is being made. 

Exceptional Items

            These are the items which are being required to be necessarily disclosed in the income statement or balance sheet of the organization in the same manner as expenses, or revenues or assets or liabilities under GAAP. Exceptional items are different in comparison to extra ordinary items. These are being disclosed under balance sheet of the organization. Investors can obtain information about exceptional items being shown in balance sheet before making a decision towards making an investment in the organization. 

Extra-Ordinary Items Quiz


  • Unusual in nature
  • Infrequent in occurrence
  • Material


  • Natural disaster damage
  • Prohibition by new law and rules by government
  • Acquisition of assets by the government
  • Gains or losses from the liquidation of long term debts (not a part of recurring operations)

Examples of non-extraordinary items

  • Loss due to strike by employees of the company
  • Large write down of intangibles, receivables and inventories
  • Gain or loss on abandonment of PPE


  • Shown in the income statement separately after discontinued operations

Infrequent or unusual items

  • Reported as gain or loss in the income statement from continuing operations


  • IFRS prohibits from reporting any items as extraordinary

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