Tax allocation within an accounting period becomes necessary when an organization encounters items such as extraordinary items, correction of errors, or discounted operations. Such allocation is important to expose the relationship between income tax expense and revenue from ongoing operations, income before extraordinary items, discounted operations, etc.
Work Step by Step
Tax allocation within the accounting period is handled by initially calculating the tax expense affiliated with income before extraordinary items (assuming there are no discounted operations). After this, the remainder of income tax expense affiliated with other items is revealed by the tax consequences of transactions, which involve these items. It is also critical to note that the applicable tax effect of these items should be disclosed separately due to their materiality.