IA Extraordinary Items

'Extraordinary Item'

The Difference Between

Non-Recurring and Extraordinary Events on the Income Statement ?

Non-Recurring Event:

A non-recurring events a one-time charge that the company doesn't expect to encounter again. An extraordinary item is an event that materially affected a company's finance and needs to be thoroughly explained in the annual report or SEC filings.

Non-recurring items are recorded under operating expenses

Extraordinary Event:

Extraordinary events can include costs associated with a merger, or the expense of implementing a new production system .

extraordinary items are listed after the net line, after-tax

why it was prohibited ?

Classifying an event or transaction as an extraordinary item requires meeting both of the following criteria :

• Unusual nature
• Infrequency

Examples of extraordinary items are:

• A tornado destroys crops, in an area where tornado damage is rare .
• An earthquake destroys a building .
• A hurricane destroys a business in an area where there is no record of hurricane damage .

Items that are not considered to be extraordinary are:

• Adjustments to accruals on long-term contracts .
• Asset disposal gains or losses .
• Effects of a strike .
• Foreign currency transaction gains or losses (including currency devaluations and revaluations) .
• Remaining excess of the fair value of acquired net assets over cost .
• Write-downs of accounts receivable, inventory, deferred research and development costs, and other intangible assets.

The following are examples of events that are not extraordinary:

• A farmer’s grapes are destroyed by frost in an area where frost damage is relatively common.
• A company is unable to complete a public equity registration.
• A company incurs costs to defend itself from a hostile takeover.