Question

Describe the presentation on the Income Statement of the extraordinary ítems, segment disposal, and prior period adjustments.

Answer 1

Extraordinary Items

An extraordinary item is a material expense or revenue item characterized by both its unusual nature and infrequency of occurrence.An extraordinary item is an event that materially affects a company's finances and thus need to be presented in the financial statements.

Treatment

Extraordinary items should be presented separately, and after the results of ordinary operations in the income statement, and should be disclosed with nature of items and should show the tax consequence also.

Segment Disposal

Segment disposal can also be called as discontinued operation.A discontinued operation occurs when a segment or certain product line in a company's business has been sold.

Treatment

The designated results of operations must be reported as a discontinued operation within the financial statements and disclosure is alo required if both of the following conditions are met:

The disposal transaction will affect the operational cash flow(either positive or negative) of the component being eliminated from company operations.

There will be no continuing involvement by the company in the operations of the component, once the disposal process has been finished.

Prior period adjustments.

The term prior period items, refers to income or expenses which arise in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods.

Treatment

To correct prior period errors, you needs to do a restrospective calculation by restating the comparative amounts for the prior periods presented in which the error occurred.This is what the revised IAS says about prior period adjustment.