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Wiley GAAP 2008 by Colorado Steven M. Bragg Englewood, Ralph Nach American Express Tax and Business Inc., Barry J. Epstein

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Discontinued Operations and Extraordinary Items

Extraordinary items and the effects of the disposal of a component of the entity (as defined by FAS 144) are reported separately in the interim period in which they occur. The same treatment is given to other unusual or infrequently occurring events. No attempt is made to allocate the effects of these items over the entire fiscal year in which they occur.

Materiality is evaluated by relating the item to the expected annual results of operations. Thus, an item to be reported in an early interim period may be judged material but later, when estimated results for the full fiscal year are known with greater precision, be found immaterial; the opposite pattern may also occur, with a presumed immaterial item being later found material to full‐year results of operations. Either of such eventualities is inherent in the interim reporting process and would not be deemed an error requiring restatement.

Example of discontinued operations and extraordinary items

Dakota Corporation's Helena, Montana, facility suffers a direct hit from a tornado during the second quarter. Dakota's management believes the loss warrants treatment as an extraordinary item since the state of Montana does not typically experience tornadoes. Dakota's insurance does not cover tornados and the loss resulting from cleanup costs and writing down the net book value of the damaged portion of the building is $620,000, or $403,000 net of applicable income taxes computed at a ...

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