## Extraordinary Items in Cash Flow Statements

### What Are Extraordinary Items?

As per AS 5, extraordinary items are income or expenses that arise from events clearly distinct from ordinary activities — for example, compensation received from a lawsuit unrelated to the business, losses from a natural disaster, etc.

> Post-Ind AS Note: The concept of extraordinary items was abolished under Ind AS. However, it remains testable under AS framework (applicable to CA Inter).

### Presentation in Cash Flow

AS 3 requires extraordinary items to be disclosed separately within the relevant activity (usually operating), rather than merged into the regular flow:

```

Cash Flow from Operating Activities

PBT X

± Non-cash / Non-operating adjustments ±Y

± Changes in Working Capital ±Z

− Tax Paid (T)

────────────────────────────────────────────

CF from Operating Activities

(Before Extraordinary Items) A

+ Extraordinary Item received E

────────────────────────────────────────────

CF from Operating Activities

(After Extraordinary Items) A+E

```

### Why Separate Disclosure?

So that users of financial statements can assess the recurring operating cash generation (before extraordinary) vs. one-time impacts (the extraordinary item).

Worked example

### Example 1

Question 3:

CF from Operating Activities (before extraordinary items):

PBT: ₹30,00,000 + Depreciation: ₹7,50,000 + Disc on debentures: ₹45,000 + Int expense: ₹5,25,000 − Profit on sale of investments: ₹30,000 − Interest income: ₹90,000 ± WC changes − Tax paid ₹15,75,000

= ₹24,66,000

Add: Extraordinary Item — Compensation received from lawsuit: ₹1,35,000

CF from Operating Activities (after extraordinary items) = ₹26,01,000

⚠️ Common exam mistakes

Merging the extraordinary item into the regular operating cash flow without separate disclosure.
Classifying extraordinary items under investing activities (they belong under operating unless clearly investing/financing in nature).
Including extraordinary items as part of PBT adjustments at the top instead of showing them separately at the bottom of operating activities.

Bare-Act text Para 29 · AS 3 – Cash Flow Statements (ICAI) · click to expand

An enterprise should disclose, in aggregate, cash flows arising from each of operating, investing, and financing activities in a manner which is most appropriate to its business. Cash flows from extraordinary items should be classified as arising from operating, investing, or financing activities as appropriate and separately disclosed.

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Cash Flow Statement – Extraordinary Items

Worked example

⚠️ Common exam mistakes