RMA Credit Risk Certification Practice Exam

On the income statement, how should 'other income & expense' be treated?

Consider the amount and its repeatability; assume zero unless it is repeatable from history Always include the full value as a recurring item Exclude it from the projection entirely Double it to be conservative

Correct Answer:

Consider the amount and its repeatability; assume zero unless it is repeatable from history

Explanation:

Non-operating items in other income and expense can be highly irregular, so the right approach is to separate what is likely to recur from what is not. When projecting the income statement, you should look at the amount and its repeatability. If there’s no evidence that the item will continue, set it to zero. If there is a history showing it repeats, include that amount as a recurring item but only to the extent it has proven to recur. This keeps the forecast focused on ongoing performance and avoids overstating profits with irregular gains or losses. Excluding it entirely would ignore the possibility of recurring non-operating effects, while automatically doubling for conservatism isn’t a standard practice for this line item.

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