Extraordinary gain definition

What is an Extraordinary Gain?

An extraordinary gain is a gain resulting from a business transaction that is rare and highly unusual. Extraordinary gains are much less frequently reported than extraordinary losses. Businesses have an incentive to include the gains in their operating results to make their performance look better, while there is an incentive to exclude extraordinary losses from operating results, also in order to make company performance look better.

Note: The classification of a transaction as an extraordinary gain is no longer allowed under GAAP, and has never been allowed under IFRS (where it is instead presumed to be included in operating results).

Presentation of Extraordinary Gains

An extraordinary gain is reported as a separate line item in the income statement, net of taxes, and after the results of operations. By doing so, the effects of the gain on the reported financial results and financial position of a business can be more clearly understood. If an extraordinary gain is immaterial to the financial results of a business, it is usually acceptable to aggregate the gain into other line items in the income statement.

Example of an Extraordinary Gain

Average Corporation sells ordinary widgets, and operates out of a small warehouse that it owns. A construction project on the premises uncovers a massive gold nugget, which Average sells for $10 million. Since Average is not in the mining business, it could account for this profit as an extraordinary gain. It would report this gain separately on its income statement, net of income taxes, in order to avoid distorting the reported results of its normal operations.