Definition of Extraordinary Gain or Loss
Extraordinary Gain or Loss
gains and losses that are judged to be both unusual and nonrecurring.
Related Terms:
No pun intended, but these types of gains
and losses are extraordinarily important to understand. These are nonrecurring,
onetime, unusual, nonoperating gains or losses that are
recorded by a business during the period. The amount of each of these
gains or losses, net of the income tax effect, is reported separately in the
income statement. Net income is reported before and after these gains
and losses. These gains and losses should not be recorded very often, but
in fact many businesses record them every other year or so, causing
much consternation to investors. In addition to evaluating the regular
stream of sales and expenses that produce operating profit, investors
also have to factor into their profit performance analysis the perturbations
of these irregular gains and losses reported by a business.
If stock X appreciates 1.5% in one month, the annualized gain for that sock over a twelve
month period is 12*1.5% = 18%. Compounded over the twelve month period, the gain is (1.015)^12 = 19.6%.
Gives the lessee the option to purchase the asset at a price below fair market
value when the lease expires.
The probability of not achieving a portfolio expected return.
When a stock is sold for a profit, it's the difference between the net sales price of securities and
their net cost, or original basis. If a stock is sold below cost, the difference is a capital loss.
The price change portion of a stock's return.
The difference between the net cost of a security and the net sale price, if that security is sold at a loss.
A positive net present value.
losses that a firm can take advantage of to reduce taxes.
Unrealized capital gain (loss) on securities held in portfolio, based on a comparison of
current market price to original cost.
Lost wealth of the shareholders due to divergent behavior of the managers.
An order to sell a stock when the price falls to a specified level.
A financial statement measuring the profit or loss of a business – income less expenses – for an accounting period.
This is an alternative moniker
for an income statement or for an internal management profit report.
Actually, it’s a misnomer because a business has either a profit or a loss
for a period. Accordingly, it should be profit or loss statement, but the
term has caught on and undoubtedly will continue to be profit and loss
statement.
any reduction in units that occurs uniformly
throughout a production process
discrete loss
a reduction in units that occurs at a specific
point in a production process
loss
an expired cost that was unintentionally incurred; a cost
that does not relate to the generation of revenues
normal loss
an expected decline in units during the production process
Capital gain
The gain recognized on the sale of a capital item (fixed asset), calculated
by subtracting its sale price from its original purchase price (less the impact of any
associated depreciation).
Extraordinary item
A transaction that rarely occurs, and which is unusual, such as
expropriation of company property by a foreign government. It is reported as a separate
line item on the income statement.
Gain
The profit earned on the sale of an asset, computed by subtracting its book value
from the revenue received from its sale.
Loss
An excess of expenses over revenues, either for a single business transaction or in
reference to the sum of all transactions for an accounting period.
Loss carryback
The offsetting of a current year loss against the reported taxable
income of previous years.
Loss carryforward
The offsetting of a current year loss against the reported taxable
income for future years.
Capital Gain
An increase in the value of an asset.
Capitalized Cost An expenditure or accrual that is reported as an asset to be amortized against
future-period revenue.
Gain-on-Sale Accounting
Up-front gain recognized from the securitization and sale of a pool
of loans. Profit is recorded for the excess of the sales price and the present value of the estimated
interest income that is expected to be received on the loans above the amounts funded on the loans
and the present value of the interest agreed to be paid to the buyers of the loan-backed securities.
Impairment Loss
A special, nonrecurring charge taken to write down an asset with an overstated
book value. Generally an asset is considered to be value-impaired when its book value
exceeds the future net cash flows expected to be received from its use. An impairment write-down
reduces an overstated book value to fair value.
Realized Gains and Losses
Increases or decreases in the fair value of an asset or a liability that
are realized through sale or settlement.
Credit Loss
A loan receivable that has proven uncollectible and is written off.
capital gain
The positive difference between the adjusted cost base of an investment held as a capital property and the proceeds of disposition you receive when you sell it. When you sell such an investment for more than you paid, you realize a capital gain.
capital loss
The negative difference between the adjusted cost base of an investment held as a capital property and the proceeds of disposition you receive when you sell it. When you sell such an investment for less than you paid, you incur a capital loss.
Job Loss Insurance (Credit Insurance)
Coverage that can pay down your debt should you become involuntarily unemployed. The payment is made to your creditors to reduce your debt owing.
basic earnings per share (EPS)
This important ratio equals the net
income for a period (usually one year) divided by the number capital
stock shares issued by a business corporation. This ratio is so important
for publicly owned business corporations that it is included in the daily
stock trading tables published by the Wall Street Journal, the New York
Times, and other major newspapers. Despite being a rather straightforward
concept, there are several technical problems in calculating
earnings per share. Actually, two EPS ratios are needed for many businesses—
basic EPS, which uses the actual number of capital shares outstanding,
and diluted EPS, which takes into account additional shares of
stock that may be issued for stock options granted by a business and
other stock shares that a business is obligated to issue in the future.
Also, many businesses report not one but two net income figures—one
before extraordinary gains and losses were recorded in the period and a
second after deducting these nonrecurring gains and losses. Many business
corporations issue more than one class of capital stock, which
makes the calculation of their earnings per share even more complicated.
income statement
Financial statement that summarizes sales revenue
and expenses for a period and reports one or more profit lines for the
period. It’s one of the three primary financial statements of a business.
The bottom-line profit figure is labeled net income or net earnings by
most businesses. Externally reported income statements disclose less
information than do internal management profit reports—but both are
based on the same profit accounting principles and methods. Keep in
mind that profit is not known until accountants complete the recording
of sales revenue and expenses for the period (as well as determining any
extraordinary gains and losses that should be recorded in the period).
Profit measurement depends on the reliability of a business’s accounting
system and the choices of accounting methods by the business. Caution:
A business may engage in certain manipulations of its accounting methods,
and managers may intervene in the normal course of operations for
the purpose of improving the amount of profit recorded in the period,
which is called earnings management, income smoothing, cooking the
books, and other pejorative terms.
net income (also called the bottom line, earnings, net earnings, and net
operating earnings)
This key figure equals sales revenue for a period
less all expenses for the period; also, any extraordinary gains and losses
for the period are included in this final profit figure. Everything is taken
into account to arrive at net income, which is popularly called the bottom
line. Net income is clearly the single most important number in business
financial reports.
profit
The general term profit is not precisely defined; it may refer to net
gains over a period of time, or cash inflows less cash outflows for an
investment, or earnings before or after certain costs and expenses are
deducted from income or revenue. In the world of business, profit is
measured by the application of generally accepted accounting principles
(GAAP). In the income statement, the final, bottom-line profit is generally
labeled net income and equals revenue (plus any extraordinary gains)
less all expenses (and less any extraordinary losses) for the period. Inter-
nal management profit reports include several profit lines: gross margin,
contribution margin, operating profit (earnings before interest and
income tax), and earnings before income tax. External income statements
report gross margin (also called gross profit) and often report one
or more other profit lines, although practice varies from business to
business in this regard.
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