Exceptional Items in Quarterly Results: How One-Off Gains and Losses Distort Profit

Exceptional items in results are the one-time gains and losses that sit between a company’s normal operating profit and the profit before tax it reports. Sell a plant at a profit, book a large impairment, pay for a restructuring or settle a court case, and one quarter’s net profit can look much better or much worse than the business actually did. In this guide we look at where exceptional items show up in Indian quarterly results, what the accounting rules really say, how to strip them out with a simple worked example, and the signs that a so-called one-off isn’t one-off at all.

New to reading results? Our pillar on how to analyse quarterly results of a company is a good starting point. Exceptional items have two close relatives that also bend the profit line, so our explainers on other income in quarterly results and operating profit vs net profit are worth a read too.

What are exceptional items in results?

Open a typical Indian results table and you’ll find a line called “Profit before exceptional items and tax”, then one called “Exceptional items”, and then “Profit before tax”. The middle line carries income or expenses that management thinks are big enough and unusual enough to show on their own. The idea is to let you see what the business earned from its regular work and what came from a one-time event.

Here’s the bit many investors miss. Indian accounting standards don’t actually define “exceptional item”. A CA Final Financial Reporting study note on GST Guntur says this in so many words, and explains that the requirement really flows from the materiality rule in Ind AS 1. The note describes exceptional items as ones that pass a “materiality” test (size and nature) and an “incidence” test, which is about how often they occur.

What Ind AS 1 says

Ind AS 1 is the Indian standard on how financial statements are presented, and its text is reproduced on TaxGuru. Paragraph 97 sets the basic rule: when items of income or expense are material, the entity has to disclose their nature and amount separately. Paragraph 98 then lists situations that would lead to that kind of separate disclosure:

• write-downs of inventories to net realisable value, or of property, plant and equipment to recoverable amount, and reversals of those write-downs;
• restructuring of the company’s activities, and reversals of any provisions for restructuring costs;
• disposals of items of property, plant and equipment;
• disposals of investments;
• discontinued operations;
• litigation settlements; and
• other reversals of provisions.

The standard also defines materiality. An omission or misstatement is material if, on its own or together with others, it could sway the economic decisions people make from the financial statements, and that depends on the size and nature of the item in its context. Put simply, there’s no fixed rupee or percentage cut-off. A ₹10 crore gain might be exceptional for a small-cap and barely noticeable for a large PSU.

Exceptional is not the same as extraordinary

Older textbooks and US filings use the term “extraordinary items”. Ind AS 1 paragraph 87 shuts that door completely: an entity shall not present any items of income or expense as extraordinary, either in the statement of profit and loss or in the notes. The US went the same way. Investopedia notes that the Financial Accounting Standards Board did away with extraordinary items in January 2015, though companies still have to disclose unusual and infrequent events. So in Indian results today, “exceptional” is the word you’ll run into, and it’s a presentation choice resting on the materiality rule, not a special accounting bucket.

An exceptional item is a judgement call by management, not a fixed accounting category, so the analyst’s job is to test that judgement rather than accept it.

Common types of exceptional items in Indian results

Matching the Ind AS 1 list to what actually turns up in Indian filings makes these easier to spot:

• Gains or losses on asset sales. Profit or loss from selling land, a building, a factory or a whole business unit.
• Sale of investments. Gains from selling a stake in a subsidiary, an associate or a listed holding.
• Impairments and write-downs. Marking down goodwill, a plant, a mine or inventory when its value falls below book, or reversing such a write-down later.
• Restructuring costs. Voluntary retirement schemes, plant shutdowns and relocation costs, or the reversal of an older restructuring provision.
• Litigation and regulatory settlements. A one-time payment to close a dispute, or a reversal when a provision is no longer required.
• Provision reversals. Releasing a provision made in an earlier period, which shows up as a gain.

Investopedia’s guide to nonrecurring charges gives a similar list from a global angle, naming restructuring fees, asset write-offs and losses from discontinued operations. It adds that analysts usually adjust the income statement to take out a nonrecurring charge when they judge performance or value a stock on an “adjusted” basis.

Where exceptional items sit in the profit and loss

In a typical Ind AS results table, the order runs like this:

1. Revenue from operations
2. Other income
3. Total income
4. Total expenses
5. Profit before exceptional items and tax (total income minus total expenses)
6. Exceptional items (a gain shown as positive, a loss as negative or in brackets)
7. Profit before tax
8. Tax expense
9. Net profit (profit after tax)

Since the exceptional line comes before tax, its hit to net profit is usually smaller than the headline amount once tax is taken into account. That matters when you try to work out “core” or adjusted profit, which the example further down shows.

A real example: BHEL’s Q2 FY27 results

BHEL’s September-quarter numbers, as reported by Zee Business on October 14, 2026, show the two lines sitting next to each other. According to that report:

• Consolidated net profit came in at ₹820.94 crore, up 119% from ₹374.89 crore in Q2 FY26.
• Revenue from operations grew 23.8% year-on-year to ₹9,300.35 crore.
• Total income was ₹9,553.01 crore and total expenses were ₹8,482.40 crore.
• Profit before tax and exceptional items rose 120.8% to ₹1,070.61 crore, from ₹484.87 crore.
• Profit before tax rose 118.1% to ₹1,089.07 crore, from ₹499.23 crore.

Two quick checks come out of those figures. First, total income minus total expenses (₹9,553.01 crore less ₹8,482.40 crore) gives ₹1,070.61 crore, which matches the reported profit before exceptional items and tax. Second, the gap between profit before tax and profit before exceptional items is ₹18.46 crore in Q2 FY27 (₹1,089.07 crore less ₹1,070.61 crore) and ₹14.36 crore in Q2 FY26 (₹499.23 crore less ₹484.87 crore). That gap is the net exceptional amount, and it’s a gain in both quarters.

So what does an investor take from this? The exceptional gain is under 2% of profit before tax in Q2 FY27 (₹18.46 crore out of ₹1,089.07 crore). And growth before exceptional items (120.8%) is actually a touch higher than growth after them (118.1%). Here the one-off line isn’t dressing up the headline. BHEL’s jump in profit came from the operating business and other income. The report doesn’t say what the exceptional amount relates to, so for that you’d need the notes to the results filed with the exchanges.

Stripping out a one-off gain, step by step

The figures below are made up and only meant to illustrate the method. Picture a mid-cap manufacturer, “Company A”, reporting this quarter:

• Profit before exceptional items and tax: ₹200 crore (last year: ₹190 crore)
• Exceptional item: a ₹120 crore gain from selling surplus land (last year: nil)
• Profit before tax: ₹320 crore (last year: ₹190 crore)
• To keep it simple, assume an effective tax rate of 25% in both years

Step 1, reported net profit. ₹320 crore × (1 − 0.25) = ₹240 crore this year, against ₹190 crore × 0.75 = ₹142.5 crore last year. On the headline, net profit is up about 68% (₹240 crore divided by ₹142.5 crore, minus 1).

Step 2, take out the exceptional gain after tax. After tax, the land gain is worth ₹120 crore × 0.75 = ₹90 crore. Adjusted net profit is ₹240 crore minus ₹90 crore, or ₹150 crore.

Step 3, compare like with like. Adjusted profit of ₹150 crore against ₹142.5 crore last year is growth of about 5.3%. The business grew in single digits. The land sale did the rest of the work on the headline.

In real filings the tax on an exceptional item can be different from the company’s usual rate, so the after-tax effect may not match a simple estimate like ours. If the company discloses the tax figure, use it. If it doesn’t, treat your adjusted number as an estimate and note that down for yourself.

And when it’s a one-off loss

Now turn it around, again with made-up numbers. “Company B” reports a net loss because it booked a ₹300 crore impairment on an overseas subsidiary, even though profit before exceptional items and tax was a healthy ₹250 crore. Profit before tax is ₹250 crore minus ₹300 crore, which is a loss of ₹50 crore. A trader who only reads the “loss” headline might sell. An analyst would ask two things instead. Is the core ₹250 crore growing? And does the impairment hint that the subsidiary will keep bleeding? A write-down is often a non-cash charge, but it’s also an admission that an earlier investment hasn’t paid off the way it was supposed to.

Adjusting for a one-off is only half the work; the other half is asking what the one-off says about the decisions that created it.

How exceptional items distort ratios and valuations

An exceptional item doesn’t just move the profit line. It flows into every number built on top of it:

• EPS. Earnings per share is based on net profit, so a one-off gain pumps up EPS for that quarter. Our guide to EPS meaning in the share market explains the basics.
• P/E ratio. A trailing P/E built on inflated EPS makes a stock look cheaper than it really is, and a big write-down can make it look absurdly expensive. Our P/E ratio explainer covers why analysts prefer adjusted earnings.
• Net profit margin. Net profit over revenue jumps or collapses with the exceptional line, even when the operating margin hasn’t budged.
• Growth rates. As Company A shows, year-on-year growth can be driven by a single item. Then the base effect bites the following year, when the one-off is gone and profit seems to “fall”.

Investopedia’s page on normalized earnings describes exactly this kind of clean-up. Normalised earnings leave out nonrecurring events and one-time items so investors can compare a company’s core business across periods and against its peers.

Red flags: when “one-off” keeps recurring

Investopedia warns that some companies wrongly book charges they run into all the time in their normal business as one-time charges, which makes their finances look healthier than they are. Its nonrecurring-charge guide adds that a charge which keeps happening may be treated as recurring, and that can change the valuation. A few practical checks for Indian results:

• Frequency. Go back eight to twelve quarters. If the exceptional line is non-zero in most of them, treat the average as a recurring cost or income.
• Direction. Be careful if losses keep getting parked in “exceptional” while gains stay inside operating profit. That habit flatters the core margin.
• Restructuring every year. A company that “restructures” every single year is really just paying a running cost of doing business.
• Provision reversals. Releasing old provisions can be perfectly legitimate, but repeated releases may mean the original provisions were too big, or that profit is being smoothed.
• Vague notes. Ind AS 1 requires the nature and amount to be disclosed. If the note to the results says very little, ask why.

A five-step checklist for results season

1. Find the line. Locate “Profit before exceptional items and tax” and “Exceptional items” in the results table, in both the standalone and consolidated statements. Our guide to consolidated vs standalone results explains why the two can differ.
2. Read the note. The notes to the results tell you what the item is. Write down its nature and amount.
3. Work out both growth rates. Calculate year-on-year growth before and after exceptional items, the way we did for BHEL above. A wide gap between the two is your cue to dig deeper.
4. Adjust after tax. Take out the after-tax effect of the exceptional item to estimate core net profit and core EPS.
5. Check the history. Compare with earlier quarters to judge whether the item really is rare.

Frequently asked questions

Are exceptional items included in net profit?

Yes. In the standard Indian format they’re added to or subtracted from profit before exceptional items and tax to get profit before tax, so they carry through into net profit and EPS. That’s exactly why adjusting for them matters.

Is other income an exceptional item?

Usually not. Other income is reported above the exceptional line as part of total income, as in the BHEL numbers above. It can still distort profit, which is why we cover it separately in our other income guide.

Does a large exceptional loss mean the stock is a buy?

Not on its own. A loss caused by a one-off can hide a healthy core business, but it can just as easily expose a failed investment or a weak segment. Look at the trend in core profit and the reason for the charge before you decide anything.

Can companies choose what to call exceptional?

Up to a point, yes. Because Ind AS doesn’t define the term and the materiality test depends on size and nature in context, management and auditors have to use judgement. That’s precisely why investors should read the notes and check for consistency over time.

What to take into your next results season

Exceptional items in results are a disclosure tool, not a verdict on the company. Ind AS 1 asks companies to show material, unusual gains and losses separately, and it bans the old “extraordinary” label outright. Your job is to make use of that disclosure. Compare growth before and after the exceptional line, strip out one-offs on an after-tax basis to estimate core profit, and keep an eye out for “one-offs” that keep coming back. Do that every results season and the big swings in headline profit will stop catching you off guard.

This article is for education only and is not investment advice. Figures for Company A and Company B are hypothetical examples. Consult a SEBI-registered investment adviser before making investment decisions.