Question

Why you think the IASB decided on the treatment of "Loss on Discontinued Operations" and Non-controlling interest Allocation that they did?

Answer 1

A loss on discontinued operations is reported net of tax in the income statement between income from continuing operations and net income.

Non-controlling interest allocation is reported in the income statement after the net income.

Intraperiod tax allocation should not affect the reporting of an unusual gain. The IASB reserves “net-of-tax” treatment for discontinued operations and prior period adjustments.

Intraperiod tax allocation has no effect on reported net income, although it does affect the amounts reported for various components of income. The effects on these components offset each other so net income remains the same. Intraperiod tax allocation merely takes the total tax expense and allocates it to the various items which affect the tax amount.

Tax allocation within a period (intraperiod) becomes necessary when a firm encounters such items as discontinued operations or corrections of errors. Such allocation is necessary to bring about an appropriate relationship between income tax expense and income from continuing operations, discontinued operations etc.

Tax allocation within a period is handled by first computing the tax expense attributable to income before income tax, assuming no discontinued operations. This is simply computed by ascertaining the income tax expense related to revenue and expense transactions entering into the determination of such income. Next, the remaining income tax expense attributable to other items is determined by the tax consequences of transactions involving these items. The applicable tax effect of these items (prior period adjustments) should be disclosed separately because of their materiality.