- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 7. Analysis of Long-Term Assets
- Subject 3. Derecognition of Assets
CFA Practice Question
Where are gains and losses on long-term asset sales shown in the income statement?
B. Included in pretax income from continuing operations
C. Shown as extraordinary items
A. Included in gross margin
B. Included in pretax income from continuing operations
C. Shown as extraordinary items
Correct Answer: B
Gains and losses on plant asset sales are considered routine transactions and therefore are included in income from continuing operations.
User Contributed Comments 7
| User | Comment |
|---|---|
| zeiad | pretax income from continuings |
| bundy | Gain & Losses are recorded on Plant Sales are recorded as income from continuing operations |
| gill15 | Couldnt it be shown as extroadinary as well? If it's the disposal of a portion of business...PP&E will be affected by either a loss or gain... |
| swisha | ^^It's all about how you classify the transaction. I think in the case of selling off an asset that was basically a segment of your company, under accounting rules this is a "routine" transaction... |
| farhan92 | agree with gill 15...its a long term asset so wouldn't really be classified as continuous ops |
| robertdole | According to IFRS: 2. Extraordinary items includes things that are unusual in nature and infrequent in occurrence. A loss due to an earthquake in Wisconsin would certainly be extraordinary. A loss due to a foreign country taking over a U.S. oil refinery in that country would be an extraordinary item. |
| mcbreatz | So it sounds like businesses buying and selling things even if it changes their structure is not enough to be considered extraordinary. |