extraordinary items

Examples of extraordinary items in the following topics:

• Extraordinary Gains and Losses

  • Extraordinary items are both unusual (abnormal) and infrequent, for example, unexpected natural disaster, expropriation, prohibitions under new regulations.
  • No items may be presented in the income statement as extraordinary items under IFRS regulations, but are permissible under US GAAP.
  • As a result, extraordinary gains or losses don't skew the company's regular earnings.
  • Examples of extraordinary items are casualty losses, losses from expropriation of assets by a foreign government, gain on life insurance, gain or loss on the early extinguishment of debt, gain on troubled debt restructuring, and write-off of an intangible asset.
  • This income statement is a very brief example prepared in accordance with IFRS; no extraordinary items are presented.

• Other Expenses

  • Discontinued operations are the most common type of irregular items.
  • Extraordinary items are both unusual (abnormal) and infrequent, for example, unexpected natural disaster, expropriation, prohibitions under new regulations.

• Earnings per Share

  • In the United States, the Financial Accounting Standards Board (FASB) requires that companies' income statements report EPS for each of the major categories of the income statement: continuing operations, discontinued operations, extraordinary items, and net income.

• Calculating Diluted Earnings per Share

  • In other words, they make an EPS calculation for income from continuing operations, discontinued operations, extraordinary items, changes in accounting principle, and net income.

• Ratio Analysis and EPS

  • In the United States, the Financial Accounting Standards Board (FASB) requires companies' income statements to report EPS for each of the major categories of the income statement: continuing operations, discontinued operations, extraordinary items, and net income.

• Price/Earnings Ratio

  • Trailing P/E from continued operations: Instead of net income, this uses operating earnings, which exclude earnings from discontinued operations, extraordinary items (e.g. one-off windfalls and write-downs), and accounting changes.

• Noncash Items

  • Noncash items, such as depreciation and amortization, will affect differences between the income statement and cash flow statement.
  • Noncash items that are reported on an income statement will cause differences between the income statement and cash flow statement.
  • Common noncash items are related to the investing and financing of assets and liabilities, and depreciation and amortization.
  • When analyzing income statements to determine the true cash flow of a business, these items should be added back in because they do not contribute to inflow or outflow of cash like other gains and expenses.

• Preferred Stock Rules and Rights

  • Some preferred shares have special voting rights to approve extraordinary events (such as the issuance of new shares or approval of the acquisition of a company) or to elect directors, but, once again, most preferred shares have no voting rights associated with them.

• ABC Technique

  • A items are very important for an organization.
  • Because of the high value of these A items, frequent value analysis is required.
  • B items are important, but of course less important, than A items and more important than C items.
  • Therefore, B items are intergroup items.
  • Differentiate different types of inventory items based on ABC inventory analysis

• Interpreting Ratios and Other Sources of Company Information

  • Absolute increases and decreases for an item from one period to the next
  • Percentage increases and decreases for an item from one period to the next
  • In a vertical analysis, each item is expressed as a percentage of a significant total.
  • A ratio can show a relationship between two items on the same financial statement or between two items on different financial statements (e.g.balance sheet and income statement).
  • In vertical analysis each item is expressed as a percentage of a significant total.