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Extraordinary Items

Updated on March 14, 2023

Extraordinary items, also known as exceptional items are items related to one-time loss or profit which are outside the scope of normal business or operations of the firm/entity. These are non-recurring in nature and can even be one time. They are treated separately in the accounting books.(Under Generally Accepted Accounting Principles (GAAP), the use of extraordinary items has largely been eliminated)

Features of Extraordinary Items

Some features of Extraordinary Items are:
1. Extraordinary items can be a source of income, increasing profits/expense, reducing profits.
2. Listed companies with substantial extraordinary items have to be reported.
3. These items are non-recurring.

Reason for separate reporting

Reason for separate reporting are:
1. Extraordinary items take away the predictive value and thus distort the financial analysis of a business.
2. Any such flows do not pertain to the core business activity of the company and separate disclosure helps the investor in taking a holistic view of the business.