[Anonymous]

Yeah, everyone’s favorite. If there is a loss, for example an extraordinary loss, I can’t figure out why you would report it net of tax. If the extraordinary loss is <$1,000,000> and tax rate is 30%, Wiley states that you would report a net <$700,000>. Can someone please help me understand why you would be taxed $300,000 on a loss?

If I understand this right, all the businesses that were hurt by hurricane Sandy, and claim an extraordinary loss (because a hurricane is both unusual and infrequent) are going to be taxed on their loss.

Am I missing a positive/negative thing here? Am I just a complete bone head? Should I just say forget and go have a beer?

[surfer4life949]

I think when it goes into OCI, the loss is net of the tax BENEFIT derived from the loss so that the RE portion is net of tax (like Net Income would go –> RE net of tax). Since you can deduct the loss, you are essentially getting $300K of tax savings. Correct me if I'm wrong on this.

B-85 OCT 2012
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I am DONE BABY!!!
Used Roger 2012 + Wiley + NINJA Notes

[Anonymous]

I think that makes some sense, if you report the loss at gross amount you are going to get double benefit of the tax deduction. Or, you have to make sure you put apples with apples and oranges with oranges.

This is going to go on my list of “don't try to figure it out, just accept it”.

[Roxwella]

Its not even really about reporting. Just think about it. The <1,000,000> loss, offsets 1,000,000 worth of income. That income would have normally been taxed at 30% (or a 300,000 tax expense). I think part of the confusion is that the 300k really has nothing to do with the loss, it has to do with what the loss offsets. So, because your loss offsets your income, you don't have to pay 300k in tax, so that increase in spendable income offsets the 1Million loss:

So

<1,000,000> loss

+300,000 decrease in tax expense

---

<700,000> actual loss, net of tax effects it has on income

[Anonymous]

Yes @Roxwella has it right

Also, remember that anything below Income from Continuing Operations on the income statement will be reported net of tax. That includes Extraordinary gains(losses), Discontinued operations and OCI (or DENT)

So the type of math that @Roxwella explained applies to all of those items. (please correct me if I'm wrong)

[vernieman21]

If you were to calculate N/I after Taxes as if the Extraordinary Loss was included in Income from Operations it might make more sense.

N/I 100

Ex. Loss (10)

---

N/I b4 tax 90

x tax .7

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63

GAAP Extraordinary Loss:

N/I after tax 70

Ex. Loss (7) = (10-3)

---

63

The only real difference is in the presentation and effects financial ratios. Hope that helps

[Author]

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