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Milan Vaishnav
Milan Vaishnav, Financial Advisor
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Experience:  Technical Analyst in Financial Markets -- Experience of more than 10 years in consulting
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What are the differences between regular and irregular items

Resolved Question:

What are the differences between regular and irregular items on an income statement? What are the requirements for items to qualify as irregular? What are some examples of these irregular items? What is the effect of irregular items on an investor’s analysis of a company?
Submitted: 5 years ago.
Category: Finance
Expert:  Milan Vaishnav replied 5 years ago.

Dear Friend,

 

Income statement, also called profit and loss statement (P&L), is a company's financial statement that indicates how the revenue (money received from the sale of products and services before expenses are taken out, also known as the "top line") is transformed into the net income (the result after all revenues and expenses have been accounted for, also known as the "botXXXXX XXXXXne"). The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported.

 

Irregular items are reported separately because this way users can better predict future cash flows - irregular items most likely won't happen next year. These are reported net of taxes.


Discontinued operations is the most common type of irregular items. Shifting business location, stopping production temporarily, or changes due to technological improvement do not qualify as discontinued operations.


Extraordinary items are both unusual (abnormal) and infrequent, for example, unexpected natural disaster, expropriation, prohibitions under new regulations. Note: natural disaster might not qualify depending on location (e.g. frost damage would not qualify in Canada but would in the tropics).


Changes in accounting principle is, for example, deciding to depreciate an investment property that has previously not been depreciated. However, changes in estimates (e.g. estimated useful life of a fixed asset) do not qualify.

 

Therefore, some changes in the accounting principle, changing in depreciation methods, and the difference that it makes, occurence of an unexpected event such as an accident, natural disaster or a calamity can be also called an irregular items so far as losses are concerned. Irregular items on the income side can be any fund received from sale of assets, windfall gains, etc can be termed as irregular items.

 

The irregular items can be reflect sudden and aftificial spike in either income or losses. While analyzing any company there are chances that it may show some unnatural rise or fall in the profits and thereby it is always advised to look in to this and consider the average growth rates. Some sale of a subsidiary, and changes occuring due to amagamation / merger and demerger can also be called irregular items.

 

Some of the references http://www.experiencefestival.com/a/income%20statement%20-%20items%20on%20income%20statement/id/1499267

http://en.wikipedia.org/wiki/Income_statement#Irregular_items

 

 

I hope the above helps,

Regards,

Milan Vaishnav, Financial Advisor
Category: Finance
Satisfied Customers: 972
Experience: Technical Analyst in Financial Markets -- Experience of more than 10 years in consulting
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