a c c o u n t s d e m y s t i f i e d
‘one-off’ event. The income or expense resulting from this event is called
an extraordinary item. Nowadays, things can only be classified as extraor-
dinary items if they are extremely rare.
As the P&L shows, Wingate incurred an extraordinary expense of £6,000
during year five. As Note 7 on page 251 explains, this was due to the
unrecovered portion of a ransom payment. Clearly, this is a pretty rare
occurrence and hopefully will not recur.
Occasionally, an event will occur in the course of the ordinary activities of
a company that gives rise to an income or expense that has a significant
impact on the accounts. Such items have to be disclosed separately. If the
exceptional item is one of the following, it will be shown on the face of
profits/losses on the sale or termination of an operation
costs of a fundamental reorganisation
profits/losses on disposal of fixed assets
All other exceptional items are set out in the notes to the accounts,
except where it is considered necessary to show them on the face of the
P&L in order to give a true and fair view of the year’s profit/loss.
Wingate had no exceptional items in either of years four or five. To give
you an example, however, if the profit on the sale of the fixed assets had
been larger, this would have been disclosed as an exceptional item.
A company can pay a dividend to its shareholders as often as it likes, sub-
ject to a legal restriction. The legal restriction is, broadly speaking, that
a company’s retained profit must always be greater than zero. Thus, if
paying a dividend would take the retained profit below zero, the company
cannot legally pay the dividend.