Which of the following is true with respect to extraordinary items?
I. Extraordinary items are recorded net of tax in income statement.
II. Extraordinary items, by definition, are probable and unusual in nature.
III. By definition, gains and losses from strikes are always extraordinary.
IV By definition, gains and losses from sale of plant property and equipment are never extraordinary.
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A. B. C. D.A
Extraordinary items are infrequent and unusual in nature. Strikes are not considered extraordinary.
Let's go through each statement and determine its accuracy:
I. Extraordinary items are recorded net of tax in the income statement. This statement is true. According to accounting principles, extraordinary items should be reported net of tax in the income statement. This means that the impact of taxes related to extraordinary items should be considered when presenting the financial effects of those items.
II. Extraordinary items, by definition, are probable and unusual in nature. This statement is incorrect. Extraordinary items, by definition, are both unusual and infrequent, but they do not need to be probable. In fact, extraordinary items are considered to be events or transactions that are both unusual in nature and unlikely to occur frequently.
III. By definition, gains and losses from strikes are always extraordinary. This statement is incorrect. Gains and losses from strikes do not automatically qualify as extraordinary items. While they may be unusual in nature, they still need to meet the criteria of being infrequent. If strikes occur frequently in the normal course of business, the gains and losses associated with them would not be considered extraordinary.
IV. By definition, gains and losses from the sale of plant property and equipment are never extraordinary. This statement is incorrect. Gains and losses from the sale of plant property and equipment can be extraordinary if they meet the criteria of being both unusual and infrequent. For example, if a company sells a piece of equipment that it does not normally use and generates a significant gain or loss from the sale, it may be considered an extraordinary item.
Based on the analysis above, the correct answer is option C: II and IV.