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ACCA Applied Skills · Financial Reporting · Reporting financial performance

For the year ended 31 March 20X6 Kestrel Co reported profit before tax of $400,000 after charging an inventory write-down of $60,000 and a one-off restructuring cost of $90,000. A director proposes presenting the restructuring cost as an 'extraordinary item' below profit after tax. What is the correct IAS 1 treatment?

The restructuring cost stays within profit or loss and is disclosed separately if material. IAS 1 prohibits extraordinary items, and no standard allows such costs to bypass profit or loss through equity or other comprehensive income.

  1. APresent it as extraordinary below profit after tax to aid comparability
  2. BInclude it within profit before tax and disclose it separately if materialCorrect
  3. CCharge it directly to retained earnings in the statement of changes in equity
  4. DPresent it in other comprehensive income as it is non-recurring

Explanation

IAS 1 prohibits presenting any items of income or expense as extraordinary items, either in the statements or in the notes. A material restructuring cost stays in profit or loss and is disclosed separately by nature and amount. Charging it to equity or OCI is not permitted, since no IFRS requires it.

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