Under which of the following conditions would material flood damage be considered an extraordinary item for financial reporting purposes?
A) Only if floods in the geographical area are unusual in nature and occur infrequently.
B) Only if the flood damage is material in amount and could have been reduced by prudent management.
C) Under any circumstances as an extraordinary item.
D) Flood damage should never be classified as an extraordinary item.

Question

Quizplus · Accepted Answer

According to accounting standards, an extraordinary item is a material event or transaction that is both unusual in nature and occurs infrequently. Therefore, material flood damage would only be considered an extraordinary item if floods in the geographical area are unusual in nature and occur infrequently. B is incorrect because the amount of the damage and the actions of management do not determine if it is extraordinary. C is incorrect because extraordinary items must meet specific criteria. D is incorrect because in certain circumstances, such as the one described in A, flood damage may be classified as an extraordinary item.

Under Which of the Following Conditions Would Material Flood Damage