Financial Reporting of Non-recurring Items

Discontinued Operations

Under both IFRS and US GAAP, a discontinued operation represents a component of an entity that has been disposed of or is held for sale.

IFRS narrowly defines what qualifies as a discontinued operation. US GAAP more broadly defines discontinued operations and could include asset groups smaller than those allowed under IFRS. US GAAP also requires that: “(a) the operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction and (b) the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction.” There is no similar requirement in IFRS.

Both US GAAP and IFRS require the results of discontinued operations be shown separately from continuing operations on the income statement. The amount is reported “net of tax.” Discontinued Operations are reported after “Income from continuing operations.”


Alpha Corporation had after tax income from continuing operations of $55,000,000 for the year.  During the year, it disposed of its division at a pretax loss of $270,000.  Prior to disposal, the division operated at a pretax loss of $450,000 for the year.  Assume a tax rate of 30%.  The partial income statement of the company will look as follows:  

Extraordinary Items

These are nonrecurring material items that differ significantly from a company’s typical business activities. Extraordinary Item must be both of an 1) unusual nature and 2) occur infrequently

Under US GAAP, the extraordinary items are reported “net of tax” after “Income from continuing operations.”

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