Intraperiod tax allocation definition
/What is an Intraperiod Tax Allocation?
An intraperiod tax allocation is the allocation of income taxes to different parts of the results appearing in the income statement of a business, so that some line items are stated net of tax. This situation arises in the following cases:
Continuing operations (results of) are presented net of tax
Discontinued operations are presented net of tax
Prior period adjustments are presented net of tax
The cumulative effect of a change in accounting principle is presented net of tax
The intraperiod tax allocation concept is used to reveal the "true" results of certain transactions net of all effects, rather than disaggregating them from income taxes. The reason for using intraperiod tax allocations is to improve the quality of information presented to the readers of a company’s financial statements.
Note that, though the income tax included in these net calculations is usually an expense, it may also be a credit, so that any of the preceding items presented net of tax would include the tax credit.
Most elements of the income statement are not presented net of the intraperiod tax allocation. For example, revenues, the cost of goods sold, and administrative expenses are not presented net of income taxes. These line items are all part of continuing operations, so there is no point in presenting each one net of tax - only the results of all continuing operations are presented net of tax.
Presentation of Intraperiod Tax Allocations
As an example of how intraperiod tax allocations can appear on the income statement, the following exhibit contains the lower portion of an income statement for a business that is presenting the results of some discontinued operations. In this presentation, several intraperiod tax allocations are being paired with the income from continuing operations, as well as with the loss from discontinued operations.
Example of an Intraperiod Tax Allocation
For example, ABC International records a gain of $1 million. Its tax rate is 20%, so it reports the gain net of taxes, at $800,000. This presentation provides more information about the net gain experienced by the company, which is more precisely-targeted information that may be of use to the readers of its financial statements.