Practical tip -- Interim period determination of tax expense or benefit when a company reports discontinued operations (No. 2011-04)

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Practical tip 09/15/2011 by Assurance services
Practical tip -- Interim period determination of tax expense or benefit when a company reports discontinued operations (No. 2011-04)

At a glance

In a company's annual financial statements, a three-step incremental approach -- commonly referred to as a "with and without" approach -- is used to allocate the annual period's tax provision (benefit) to continuing operations and other components of comprehensive income and shareholders' equity. This Practical tip summarizes the considerations and provides an example of applying the "with and without" model in interim periods.

When a component of a company is either sold or classified as “held for sale” and reported as a discontinued operation, the company needs to determine the tax effect allocable to the results of the discontinued component and to any gain or loss on sale. In a company's annual financial statements, a three-step incremental approach -- commonly referred to as a "with and without" approach -- is used to allocate the annual period's tax provision (benefit) to continuing operations and other components of comprehensive income and shareholders' equity. The “with and without” model applies to both annual and interim periods. However, there are some specific considerations to keep in mind for interim reporting purposes.

This Practical tip summarizes the considerations and provides an example of applying the "with and without" model in interim periods.