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(231)-EXTRAORDINARY ITEMS AND PRIOR YEAR ADJUSTMENTS

Friday, January 7, 2011

Extraordinary Items and Prior Year Adjustments


Prior Year Adjustments


Prior year adjustments are those material adjustments applicable to prior year arising from changes in accounting policies or from the correction of fundamental errors. They do not include normal recurring corrections or adjustments of accounting estimates made in prior years.
  • Changes in accounting policy
Examples could include policy changes by a company regarding depreciation of building, deferred tax, goodwill or finance leases.
  • Correction of fundamental errors
This refers to errors which are of such fundamental importance as to affect the true and fair view. Had the errors been recognised at the time they occurred, the financial statements would have been withdrawn and subsequently amended.


Reserve movements


the term "reserve movements" refers to items which are taken direct to reserves rather than passed through the profit and loss account. One purpose of SSAP was to restrict the use of reserve movements.

Reserve movements may be required or permitted in the following circumstances:
  • Changes in value of investment properties
  • Certain exchange differences required to be taken direct to reserves by SSAP
  • immediate write-off against reserves
  • amounts required by law to be charged direct to the share premium account
  • Sale of previously revalued assets

Disclosure requirements of SSAP


SSAP made it very clear that the following items should be separately disclosed in the profit and loss account and dealt with in the following order;
  • Profit and loss on ordinary activities
  • Extraordinary profit or loss
  • Profit or loss for the financial year
  • Dividends and other appropriations

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