Exceptional Items explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Schedule III has a line for exceptional items and no definition of them. The content comes from four paragraphs of Ind AS 1, one of which lists what typically qualifies.
An undefined term
The term "exceptional items" is neither defined in Ind AS Schedule III nor in Ind AS. What exists instead are four references in Ind AS 1:
| Para | Effect |
|---|---|
| 85 | Additional line items, headings and subtotals shall be presented when such presentation is relevant to an understanding of the entity's financial performance |
| 86 | Disclosing the components of financial performance assists users in understanding the financial performance achieved and in making projections of future financial performance. The entity considers materiality and the nature and function of the items |
| 97 | When items of income or expense are material, an entity shall disclose their nature and amount separately |
| 98 | Lists circumstances that would give rise to separate disclosure |
The distinction is easy to blur and matters a great deal, because Ind AS 1 prohibits an entity from presenting any items of income or expense as extraordinary items, in the statement of profit and loss or in the notes. There is no "profit before extraordinary items" line in this Schedule.
Exceptional items survive because they rest on a different foundation. They are not a separate category of income standing outside ordinary activities — they are ordinary items disclosed separately because they are material, under the general para 97 requirement to disclose the nature and amount of material items.
That is why the para 98 list reads as it does. Every item on it — inventory write-downs, restructuring, disposals, litigation settlements — arises from ordinary business activity. What earns separate presentation is size and nature, not any claim to be outside the business.
The seven circumstances in para 98
- Write-downs of inventories to net realisable value, or of property, plant and equipment to recoverable amount, and reversals of such write-downs;
- Restructurings of the activities of an entity and reversals of any provisions for the costs of restructuring;
- Disposals of items of property, plant and equipment;
- Disposals of investments;
- Discontinued operations;
- Litigation settlements; and
- Other reversals of provisions.
Note that reversals appear three times. A write-back is as much a candidate for separate disclosure as the original charge, and for the same reason — it distorts the period's result if buried.
Face or notes
In case the company has more than one such item of income or expense of the above nature which is exceptional, then such items should be disclosed on the face of the Statement of Profit and Loss. Details of all individual items should be disclosed in the Notes.
So the face carries the exceptional items line (or lines), and the note carries the itemisation. A single aggregated figure on the face without a supporting breakdown does not meet the requirement.
The relationship with the one percent rule
Note 7(c) separately requires disclosure of any item of income or expenditure exceeding one percent of the revenue from operations or Rs. 10,00,000, whichever is higher — and these requirements are to be treated as mutually exclusive of the materiality assessment.
An item can therefore require disclosure under the arithmetic threshold without being exceptional, and an exceptional item can fall below the threshold yet require disclosure because it is material in nature.
Common mistakes
- Presenting a heading that combines exceptional and extraordinary items.
- Showing one aggregated exceptional figure with no itemisation in the notes.
- Treating only losses as exceptional and absorbing the reversals.
- Using the one percent threshold as the test for what is exceptional.