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 Extra-Ordinary Items

It would not be possible to measure periodic income correctly in the absence of proper treatment of extraordinary gains and losses although they may be presented in a separate section of the income statement. Extraordinary items are events and transactions that are distinguished by their unusual nature and by infrequency of their occurrence. Thus, to qualify as extra-ordinary, an item must meet both the criteria:

(a)    Unusual nature: the underlying event or transaction should posses a high degree of abnormality and to be of a type 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.

(b)    Infrequency of occurrence: 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. Thus only usual and infrequent events and transactions produce extraordinary gains or losses. Examples of items likely to be extraordinary of most business enterprises are losses from earthquakes, confiscation of property by foreign Government, gain or loss on sale of land which has been owned for many years, floods and other catastrophes not expected to recur. The following examples o gains and losses that shall not be reported as extra-ordinary items:

(i)    the write down or write-off receivable inventories, equipment leased to others or intangible assets;

(ii)    the gains or losses from exchange or translation of foreign currencies, including those relating to major devaluations;

(iii)    the gains or losses on disposal of segment of business;

(iv)    other gains or losses from sale or abandonment of property, plant or equipment used in the business;

(v)    the effect of a strike;

(vi)    the adjustment of accruals on long terms contracts.

Transactions that meet both the criteria are rare in practice. For example gains and losses on the sale of fixed assets do not qualify as extra-ordinary items because:

(1)    they are not unusual and (2) they recur from time to time n the ordinary course of business activities. Similarly gains or losses incurred on the sale of investments are usual and recurring for most enterprises.

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