# ASC 740-20: Income Taxes — Intraperiod Tax Allocation Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/740/20/) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:17:22.686Z to 2026-09-10T01:17:39.374Z Record version: sha256:d09b1ff7a578da61e0c20e38136be0a6a64e488d611c9868f6f6f9fb21532ab1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-20: Income Taxes — Intraperiod Tax Allocation ### Machine-generated study aids ```json { "summary": "ASC 740-20 governs intraperiod tax allocation: after total income tax expense or benefit for the period is computed under ASC 740-10, this Subtopic allocates that total among continuing operations, discontinued operations, other comprehensive income, and items charged or credited directly to shareholders' equity (740-20-45-2). Continuing operations is computed first (\"with-and-without\"), considering only items in continuing operations (740-20-45-7), and the residual is assigned to the single other item, or apportioned among multiple other items in proportion to their individual effects (740-20-45-12 and 45-14).", "key_points": [ "Total income tax expense or benefit (current plus deferred) is first computed under Subtopic 740-10, then allocated among continuing operations, discontinued operations, other comprehensive income, and items charged or credited directly to shareholders' equity (740-20-45-1 through 45-2).", "The tax effect of pretax income or loss from continuing operations must be determined by a computation that does not consider the tax effects of items excluded from continuing operations (740-20-45-7); the amount allocated to continuing operations also includes tax effects of changes in judgment about realizability of deferred tax assets, changes in tax laws or rates, changes in tax status, and tax-deductible dividends paid to shareholders (740-20-45-8).", "The tax benefit of an operating loss carryforward or carryback is reported in the same manner as the source of income or loss in the current year, not the source of the prior loss or of expected future income, except for items allocated to equity under 740-20-45-11(c) through (f) (740-20-45-3).", "If there is only one item other than continuing operations, the entire residual after allocation to continuing operations goes to that item; if there are two or more, the residual is apportioned in proportion to their individual effects, with tax benefit apportioned ratably to net loss items first and the remaining expense ratably to net gain items (740-20-45-12, 45-14).", "Tax effects charged or credited directly to OCI or equity include retained earnings adjustments for changes in accounting principle or error corrections, gains and losses in comprehensive income but excluded from net income, increases/decreases in contributed capital, deductible temporary differences and carryforwards existing at a quasi reorganization, and changes in tax bases from transactions with shareholders (740-20-45-11).", "A valuation allowance established at the same time as a deferred tax asset for a net unrealized loss on available-for-sale securities is charged to OCI (740-20-45-15), but a valuation allowance recognized or reversed in a subsequent fiscal year due to a change in judgment is reported in continuing operations (740-20-45-16, 45-17).", "Changes in the beginning-of-year valuation allowance from changes in judgment about future realization are ordinarily allocated to continuing operations under 740-10-45-20, while other valuation allowance changes are allocated using the general methodology of this Section (740-20-45-4)." ], "categories": [ "Income taxes", "Presentation", "Financial statement presentation" ], "audience_level": "intermediate", "student_note": "Exam questions almost always test the \"incremental\" mechanics: compute tax on continuing operations as if the other items did not exist, then plug the residual to the other items. The most common error is letting a gain in discontinued operations or OCI influence the continuing-operations computation (e.g., using it to avoid a valuation allowance), which 740-20-45-7 prohibits.", "related_topics": [ "740-10", "740-30", "250-10", "830-30", "320-10", "220-10" ], "key_concepts": [ "intraperiod tax allocation", "continuing operations", "discontinued operations", "other comprehensive income", "valuation allowance", "operating loss carryforward", "deferred tax asset", "with-and-without computation" ] } ``` Source downloaded (UTC): 2026-09-10T01:17:22.686Z to 2026-09-10T01:17:22.686Z Record version: sha256:e16a2949c8241c9bc3d749169eb9a52b1f415043eb3c70847e2285ff474cb0d4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-20-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/740/20/#00-status) SEC content: no ##### [740-20-00-1](https://asc.understandingaccounting.org/asc/740/20/#740-20-00-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:22.686Z to 2026-09-10T01:17:22.686Z Record version: sha256:fffed749df68b02382db2616aa6a059c97f6427c001f50d0e39d4b63ff986630 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
Debt Security (1st def.)AmendedAccounting Standards Update No. 2016-1912/14/2016
Deferred Tax Expense (or Benefit)AmendedAccounting Standards Update No. 2015-0101/09/2015
Gains and Losses Included in Comprehensive Income but Excluded from Net IncomeAmendedAccounting Standards Update No. 2012-0410/01/2012
Tax ConsequencesSupersededAccounting Standards Update No. 2019-1212/18/2019
Temporary DifferenceAmendedAccounting Standards Update No. 2016-1610/24/2016
740-20-05-2AmendedAccounting Standards Update No. 2015-0101/09/2015
740-20-45-2AmendedAccounting Standards Update No. 2015-0101/09/2015
740-20-45-7AmendedAccounting Standards Update No. 2019-1212/18/2019
740-20-45-7AmendedAccounting Standards Update No. 2015-0101/09/2015
740-20-45-8AmendedAccounting Standards Update No. 2016-0903/30/2016
740-20-45-11AmendedAccounting Standards Update No. 2016-0903/30/2016
740-20-45-15 through 45-18
AddedAccounting Standards Update No. 2016-0101/05/2016
740-20-55-2AmendedAccounting Standards Update No. 2016-0903/30/2016
740-20-55-10 through 55-12
AmendedAccounting Standards Update No. 2019-1212/18/2019
740-20-55-10 through 55-12
AmendedAccounting Standards Update No. 2015-0101/09/2015
740-20-55-12A through 55-12C
AddedAccounting Standards Update No. 2019-1212/18/2019
740-20-55-14AmendedAccounting Standards Update No. 2019-1212/18/2019
740-20-55-15 through 55-17
AmendedAccounting Standards Update No. 2015-0101/09/2015
740-20-60-1SupersededAccounting Standards Update No. 2016-0101/05/2016
Source downloaded (UTC): 2026-09-10T01:17:25.147Z to 2026-09-10T01:17:25.147Z Record version: sha256:8c449bc2222b94260992adb3d95127939d090df3dc67e69b8dae5946f94c01e4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-20-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/740/20/#05-overview-and-background) SEC content: no ##### [740-20-05-1](https://asc.understandingaccounting.org/asc/740/20/#740-20-05-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:25.147Z to 2026-09-10T01:17:25.147Z Record version: sha256:d3b373a9e702baae3e9e839c8f7a8bd342243af34a644618fd121aeb3ade2376 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Subtopic 740-10 addresses the majority of accounting requirements for [income taxes](https://asc.understandingaccounting.org/glossary/i/#income-taxes "Domestic and foreign federal (national), state, and local (including franchise) taxes based on income."). That Subtopic also establishes the methods and requirements for computing total income tax expense or benefit for an entity. ##### [740-20-05-2](https://asc.understandingaccounting.org/asc/740/20/#740-20-05-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:25.147Z to 2026-09-10T01:17:25.147Z Record version: sha256:a513debd35be0723e7e351c31b0195a34c9be71701d0c7bca02addab49e48a10 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic addresses the process of intraperiod tax allocation that allocates total income tax expense or benefit of an entity for a period to different components of comprehensive income and shareholders' equity. This includes allocating income tax expense or benefit for the year to: 1. a Continuing operations 2. b Discontinued operations 3. c [Subparagraph superseded by Accounting Standards Update No. 2015-01](https://asc.understandingaccounting.org/updates/asu-2015-01/). 4. d Other comprehensive income 5. e Items charged or credited directly to shareholders' equity. This Subtopic provides guidance on the method for making those allocations of total income tax expense or benefit and provides several examples and illustrations. Source downloaded (UTC): 2026-09-10T01:17:27.435Z to 2026-09-10T01:17:27.435Z Record version: sha256:88976f16f0344e6e39dbc533b67a689e50e0afdd2d678dcafb8d5ac4388062ed Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-20-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/740/20/#15-scope-and-scope-exceptions) SEC content: no #### Overall Guidance ##### [740-20-15-1](https://asc.understandingaccounting.org/asc/740/20/#740-20-15-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:27.435Z to 2026-09-10T01:17:27.435Z Record version: sha256:01d8f99fa8a0ed325528c466033165b7e6d73f69e579ef6e438ee25dfe2c77c5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 740-10-15, with specific transaction qualifications noted below. #### Transactions ##### [740-20-15-2](https://asc.understandingaccounting.org/asc/740/20/#740-20-15-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:27.435Z to 2026-09-10T01:17:27.435Z Record version: sha256:502b37c95bf14231088308266d01199255b45b39f859359ee9ccdc7aae6bb395 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in this Subtopic applies to the process of allocating total income tax expense or benefit of an entity for a period to different components of comprehensive income and shareholders' equity. Source downloaded (UTC): 2026-09-10T01:17:32.590Z to 2026-09-10T01:17:32.590Z Record version: sha256:528c47a3d4b9ea27e69535a426dd688bcc48d6987311c55a8b9d1a446c6dcb24 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-20-45: 45 Other Presentation Matters [Read section](https://asc.understandingaccounting.org/asc/740/20/#45-other-presentation-matters) SEC content: no #### Allocation of Income Tax Expense or Benefit for the Year ##### [740-20-45-1](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:32.590Z to 2026-09-10T01:17:32.590Z Record version: sha256:2cc0820576c3b998d60bff96b5319fa94b6c2e29740aac1f437900eaf6d69f60 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance addresses the requirements to allocate total income tax expense or benefit. Subtopic 740-10 defines the requirements for computing total income tax expense or benefit for an entity. As defined by those requirements, total income tax expense or benefit includes current and deferred [income taxes](https://asc.understandingaccounting.org/glossary/i/#income-taxes "Domestic and foreign federal (national), state, and local (including franchise) taxes based on income."). After determining total income tax expense or benefit under those requirements, the intraperiod tax allocation guidance is used to allocate total income tax expense or benefit to different components of comprehensive income and shareholders' equity. ##### [740-20-45-2](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:32.590Z to 2026-09-10T01:17:32.590Z Record version: sha256:205fa70d89a5a33789e40e28c3913fde6f8100115c0205c09df99962115c4a2d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Income tax expense or benefit for the year shall be allocated among: 1. a Continuing operations 2. b Discontinued operations 3. c [Subparagraph superseded by Accounting Standards Update No. 2015-01](https://asc.understandingaccounting.org/updates/asu-2015-01/). 4. d Other comprehensive income 5. e Items charged or credited directly to shareholders' equity. ##### [740-20-45-3](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:32.590Z to 2026-09-10T01:17:32.590Z Record version: sha256:afa9478f650ff208d15223799b18cede1ecf00b692b7b3d35b4298ea7d860a54 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The tax benefit of an operating loss carryforward or carryback (other than for the exceptions related to the [carryforwards](https://asc.understandingaccounting.org/glossary/c/#carryforwards "Deductions or credits that cannot be utilized on the tax return during a year that may be carried forward to reduce taxable income or taxes payable in a future year. An operating loss carryforward is an excess of tax deductions over gross income in a year; a tax credit carryforward is the amount by which tax credits available for utilization exceed statutory limitations. Different tax jurisdictions have different rules about whether excess deductions or credits may be carried forward and the length of the carryforward period. The terms carryforward, operating loss carryforward, and tax credit carryforward refer to the amounts of those items, if any, reported in the tax return for the current year.") identified at the end of this paragraph) shall be reported in the same manner as the source of the income or loss in the current year and not in the same manner as the source of the operating loss carryforward or taxes paid in a prior year or the source of expected future income that will result in realization of a [deferred tax asset](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-asset "The deferred tax consequences attributable to deductible temporary differences and carryforwards. A deferred tax asset is measured using the applicable enacted tax rate and provisions of the enacted tax law. A deferred tax asset is reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.") for an operating loss carryforward from the current year. The only exception is the tax effects of deductible temporary differences and carryforwards that are allocated to shareholders' equity in accordance with the provisions of paragraph [740-20-45-11(c) through (f)](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-11). 1. a [Subparagraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). 2. b [Subparagraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [740-20-45-4](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:32.590Z to 2026-09-10T01:17:32.590Z Record version: sha256:b5ab05879cb9868611f6cf64b26690b0ab8e64fde4b82a73f4b2019366216925 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [740-10-45-20](https://asc.understandingaccounting.org/asc/740/10/#740-10-45-20) requires that changes in the beginning of the year balance of a [valuation allowance](https://asc.understandingaccounting.org/glossary/v/#valuation-allowance "The portion of a deferred tax asset for which it is more likely than not that a tax benefit will not be realized.") caused by changes in judgment about the realization of deferred tax assets in future years are ordinarily allocated to continuing operations. That paragraph also identifies certain exceptions to that allocation guidance related to business combinations and the items specified in paragraph [740-20-45-11(c) through (f)](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-11). The effect of other changes in the balance of a valuation allowance are allocated among continuing operations and items other than continuing operations using the general allocation methodology presented in this Section. ##### [740-20-45-5](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:32.590Z to 2026-09-10T01:17:32.590Z Record version: sha256:21b9c2f457838c3f7a397f4194f87b1b2e773170d473b1067d93def698f3ed64 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Section 740-20-55 for examples of the allocation of total tax expense or benefit to continuing operations, the effect of a tax credit carryforward, and an allocation to other comprehensive income. #### Allocation to Continuing Operations ##### [740-20-45-6](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:32.590Z to 2026-09-10T01:17:32.590Z Record version: sha256:c3cb846a057302786c62584c625d4586f5a46cd8a17296ba5f5ef3e41e2a3fa8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance addresses the allocation methodology for allocating total income tax expense or benefit to continuing operations. The amount of income tax expense or benefit allocated to continuing operations may include multiple components. The tax effect of pretax income or loss from current year continuing operations is always one component of the amount allocated to continuing operations. ##### [740-20-45-7](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:32.590Z to 2026-09-10T01:17:32.590Z Record version: sha256:7ea5fb32fbda1a7af45a49a898d423115780a587fc2d51f154743e0cb54f2685 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The tax effect of pretax income or loss from continuing operations should be determined by a computation that does not consider the tax effects of items that are not included in continuing operations. ##### [740-20-45-8](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:32.590Z to 2026-09-10T01:17:32.590Z Record version: sha256:2aad64232e5b60b66b805ed5675967f8ec7cb88328aa0b8409879f66a7459d18 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The amount allocated to continuing operations is the tax effect of the pretax income or loss from continuing operations that occurred during the year, plus or minus income tax effects of: 1. a Changes in circumstances that cause a change in judgment about the realization of deferred tax assets in future years (see paragraph [740-10-45-20](https://asc.understandingaccounting.org/asc/740/10/#740-10-45-20) for a discussion of exceptions to this allocation for certain items) 2. b Changes in tax laws or rates (see paragraph [740-10-35-4](https://asc.understandingaccounting.org/asc/740/10/#740-10-35-4)) 3. c Changes in tax status (see paragraphs [740-10-25-32](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-32) and [740-10-40-6](https://asc.understandingaccounting.org/asc/740/10/#740-10-40-6)) 4. d Tax-deductible dividends paid to shareholders. The remainder is allocated to items other than continuing operations in accordance with the provisions of paragraphs [740-20-45-12](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-12) and [740-20-45-14](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-14). ##### [740-20-45-9](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:32.590Z to 2026-09-10T01:17:32.590Z Record version: sha256:3d216e95e04d4182c9b8eba1f500bb8e3015e65b3e67e65e6c77be81bcf51e90 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Example 1 (paragraph [740-20-55-1](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-1)) for an example of the allocation of total tax expense or benefit to continuing operations. #### Allocations to Items Other Than Continuing Operations ##### [740-20-45-10](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:32.590Z to 2026-09-10T01:17:32.590Z Record version: sha256:5260400c3d9742feb534c0e27c43482ebda75d9b1f9995b7d039e5627913448d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This guidance identifies specific items outside of continuing operations that require an allocation of income tax expense or benefit. It also establishes the methodology for allocation. That methodology differs depending on whether there is only one item other than continuing operations or whether there are multiple items other than continuing operations. ##### [740-20-45-11](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:32.590Z to 2026-09-10T01:17:32.590Z Record version: sha256:a4352999f3489ad7c1500e6cf997dc85718205b03bfe638854aed4a331a20c3c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The tax effects of the following items occurring during the year shall be charged or credited directly to other comprehensive income or to related components of shareholders' equity: 1. a Adjustments of the opening balance of retained earnings for certain changes in accounting principles or a correction of an error. Paragraph [250-10-45-8](https://asc.understandingaccounting.org/asc/250/10/#250-10-45-8) addresses the effects of a change in accounting principle, including any related income tax effects. 2. b [Gains and losses included in comprehensive income but excluded from net income](https://asc.understandingaccounting.org/glossary/g/#gains-and-losses-included-in-comprehensive-income-but-excluded-from-net-income "Gains and losses included in comprehensive income but excluded from net income include certain changes in fair values of investments in marketable equity securities classified as noncurrent assets, certain changes in fair values of investments in industries having specialized accounting practices for marketable securities, adjustments related to pension liabilities or assets recognized within other comprehensive income, and foreign currency translation adjustments. Future changes to generally accepted accounting principles (GAAP) may change what is included in this category.") (for example, translation adjustments accounted for under the requirements of Topic 830 and changes in the unrealized holding gains and losses of securities classified as available-for-sale as required by Topic 320). 3. c An increase or decrease in contributed capital (for example, deductible expenditures reported as a reduction of the proceeds from issuing capital stock). 4. d [Subparagraph superseded by Accounting Standards Update No. 2016-09](https://asc.understandingaccounting.org/updates/asu-2016-09/). 5. e [Subparagraph superseded by Accounting Standards Update No. 2016-09](https://asc.understandingaccounting.org/updates/asu-2016-09/). 6. f Deductible temporary differences and carryforwards that existed at the date of a quasi reorganization. 7. g All changes in the tax bases of assets and liabilities caused by transactions among or with shareholders shall be included in equity including the effect of valuation allowances initially required upon recognition of any related deferred tax assets. Changes in valuation allowances occurring in subsequent periods shall be included in the income statement. #### Single Item of Allocation Other Than Continuing Operations ##### [740-20-45-12](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:32.590Z to 2026-09-10T01:17:32.590Z Record version: sha256:aced2f29b39527bd6e0f0bd3a5eab8342cb4e58b1c5761201fdd1ddce1fa95e2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If there is only one item other than continuing operations, the portion of income tax expense or benefit for the year that remains after the allocation to continuing operations shall be allocated to that item. ##### [740-20-45-13](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:32.590Z to 2026-09-10T01:17:32.590Z Record version: sha256:0b5b39b52ad7d77594b751daebd21a120dbf2896c5bc11495b584fb0016a7b71 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Example 2 (paragraph [740-20-55-8](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-8)) for an example of the allocation of total tax expense or benefit to continuing operations and one other item. #### Multiple Items of Allocation Other Than Continuing Operations ##### [740-20-45-14](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:32.590Z to 2026-09-10T01:17:32.590Z Record version: sha256:3c89c0bae77eacd12f2ef8b80b6dd076a84095a816c1a1bdcc369393f96cddd5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If there are two or more items other than continuing operations, the amount that remains after the allocation to continuing operations shall be allocated among those other items in proportion to their individual effects on income tax expense or benefit for the year. When there are two or more items other than continuing operations, the sum of the separately calculated, individual effects of each item sometimes may not equal the amount of income tax expense or benefit for the year that remains after the allocation to continuing operations. In those circumstances, the procedures to allocate the remaining amount to items other than continuing operations are as follows: 1. a Determine the effect on income tax expense or benefit for the year of the total net loss for all net loss items. 2. b Apportion the tax benefit determined in (a) ratably to each net loss item. 3. c Determine the amount that remains, that is, the difference between the amount to be allocated to all items other than continuing operations and the amount allocated to all net loss items. 4. d Apportion the tax expense determined in (c) ratably to each net gain item. #### Presentation of Deferred Tax Assets Relating to Losses on Available-for-Sale Debt Securities ##### [740-20-45-15](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:32.590Z to 2026-09-10T01:17:32.590Z Record version: sha256:db68532e32b73f40fdd39deac33f26b24de1b7950af651f6a42a793a53884f6e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity that recognizes a deferred tax asset relating to a net unrealized loss on available-for-sale securities may at the same time conclude that it is more likely than not that some or all of that deferred tax asset will not be realized. In that circumstance, the entity shall report the offsetting entry to the valuation allowance in the component of other comprehensive income classified as unrealized gains and losses on certain investments in [debt securities](https://asc.understandingaccounting.org/glossary/d/#debt-security "Any security representing a creditor relationship with an entity. The term debt security also includes all of the following: Preferred stock that by its terms either must be redeemed by the issuing entity or is redeemable at the option of the investor A collateralized mortgage obligation (or other instrument) that is issued in equity form but is required to be accounted for as a nonequity instrument regardless of how that instrument is classified (that is, whether equity or debt) in the issuer's statement of financial position U.S. Treasury securities U.S. government agency securities Municipal securities Corporate bonds Convertible debt Commercial paper All securitized debt instruments, such as collateralized mortgage obligations and real estate mortgage investment conduits Interest-only and principal-only strips. The term debt security excludes all of the following: Option contracts Financial futures contracts Forward contracts Lease contracts Receivables that do not meet the definition of security and, so, are not debt securities, for example: Trade accounts receivable arising from sales on credit by industrial or commercial entities Loans receivable arising from consumer, commercial, and real estate lending activities of financial institutions.") because the valuation allowance is directly related to the unrealized holding loss on the available-for-sale securities. The entity shall also report the offsetting entry to the valuation allowance in the component of other comprehensive income classified as unrealized gains and losses on certain investments in debt securities if the entity concludes on the need for a valuation allowance in a later interim period of the same fiscal year in which the deferred tax asset is initially recognized. ##### [740-20-45-16](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:32.590Z to 2026-09-10T01:17:32.590Z Record version: sha256:188163a9fb11f0eb37fa3fec2509dd40324b3fd45740deef8632832d8b1a7347 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity that does not need to recognize a valuation allowance at the same time that it establishes a deferred tax asset relating to a net unrealized loss on available-for-sale securities may, in a subsequent fiscal year, conclude that it is more likely than not that some or all of that deferred tax asset will not be realized. In that circumstance, if an entity initially decided that no valuation allowance was required at the time the unrealized loss was recognized but in a subsequent fiscal year decides that it is more likely than not that the deferred tax asset will not be realized, a valuation allowance shall be recognized. The entity shall include the offsetting entry as an item in determining income from continuing operations. The offsetting entry shall not be included in other comprehensive income. ##### [740-20-45-17](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-17) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:32.590Z to 2026-09-10T01:17:32.590Z Record version: sha256:738b34c2d29a8a26e95d13e7d2668ce470391c22c2327e77514d06e73b1ab85a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity that recognizes a deferred tax asset relating to a net unrealized loss on available-for-sale securities may, at the same time, conclude that a valuation allowance is warranted and in a subsequent fiscal year makes a change in judgment about the level of future years' taxable income such that all or a portion of that valuation allowance is no longer warranted. In that circumstance, the entity shall include any reversals in the valuation allowance due to such a change in judgment in subsequent fiscal years as an item in determining income from continuing operations, even though initial recognition of the valuation allowance affected the component of other comprehensive income classified as unrealized gains and losses on certain investments in debt securities. If, rather than a change in judgment about future years' taxable income, the entity generates taxable income in the current year (subsequent to the year the related deferred tax asset was recognized) that can use the benefit of the deferred tax asset, the elimination (or reduction) of the valuation allowance is allocated to that taxable income. Paragraph [740-10-45-20](https://asc.understandingaccounting.org/asc/740/10/#740-10-45-20) provides additional information. ##### [740-20-45-18](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:32.590Z to 2026-09-10T01:17:32.590Z Record version: sha256:d83a3b5dd4deadae8870a3dc81016e7e3021615df5bf5b94ed241f76e2660ed6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity that has recognized a deferred tax asset relating to other deductible temporary differences in a previous fiscal year may at the same time have concluded that no valuation allowance was warranted. If in the current year an entity recognizes a deferred tax asset relating to a net unrealized loss on available-for-sale securities that arose in the current year and at the same time concludes that a valuation allowance is warranted, management shall determine the extent to which the valuation allowance is directly related to the unrealized loss and the other deductible temporary differences, such as an accrual for other postemployment benefits. The entity shall report the offsetting entry to the valuation allowance in the component of other comprehensive income classified as unrealized gains and losses on certain investments in debt securities only to the extent the valuation allowance is directly related to the unrealized loss on the available-for-sale securities that arose in the current year. Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:36070cf6596d54be9c5617febdec3d52c97e92871e21575749ac489fbd2fa446 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-20-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/740/20/#55-implementation-guidance-and-illustrations) SEC content: no #### Illustrations ##### [740-20-55-1](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:0625bbebfb98a8852df2bded6be383df00dc0724d15a551c97de48d454bb7032 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [740-20-45-8](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-8) states that the amount of [income tax expense or benefit](https://asc.understandingaccounting.org/glossary/i/#income-tax-expense-or-benefit "The sum of current tax expense (or benefit) and deferred tax expense (or benefit).") allocated to continuing operations is the tax effect of pretax income or loss from continuing operations that occurred during the year plus or minus certain adjustments. ##### [740-20-55-2](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:256d889c13467a45dbaf0d2ee7cc066805dbb15b07b81c1c3d6d6ee0c0d5c841 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The adjustments include the tax effects of: 1. a Changes in circumstances that cause a change in judgment about the realization of deferred tax assets in future years 2. b Changes in tax laws or rates 3. c Changes in tax status 4. d Tax-deductible dividends paid to shareholders. ##### [740-20-55-3](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:3893b8c3bedb3c068f901ebbcc2561463913c08a2d2099580cdb95bdcaf84d44 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The allocation of income tax expense between pretax income from continuing operations and other items shall include deferred taxes. ##### [740-20-55-4](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:f66b9892f542dcea49250040589cfdf3349199a3916f5493f5867a702ac24c3a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates allocation of current and [deferred tax expense](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-expense-or-benefit "The change during the year in an entity's deferred tax liabilities and assets. For deferred tax liabilities and assets acquired in a purchase business combination during the year, it is the change since the combination date. Income tax expense (or benefit) for the year is allocated among continuing operations, discontinued operations, and items charged or credited directly to shareholders' equity."). The assumptions are as follows: 1. a Tax rates are 40 percent for Years 1, 2, and 3 and 30 percent for Year 4 and subsequent years. No valuation allowances are required for deferred tax assets. 2. b At the end of Year 1, there is a $500 [taxable temporary difference](https://asc.understandingaccounting.org/glossary/t/#taxable-temporary-difference "Temporary differences that result in taxable amounts in future years when the related asset is recovered or the related liability is settled. See Temporary Difference.") relating to the entity's contracting operations and a $200 [deductible temporary difference](https://asc.understandingaccounting.org/glossary/d/#deductible-temporary-difference "Temporary differences that result in deductible amounts in future years when the related asset or liability is recovered or settled, respectively. See Temporary Difference.") related to its other operations. Determination of the entity's deferred tax assets and liabilities at the end of Year 1 is as follows. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-124829D9-4B61-4362-B2C5-BE8367101418-low.gif) Future Years Temporary Differences Year 2 Year 3 Year 4 Total Contracting operations $- $- $500 $500 Other operations (100) (100) - (200) $(100) $(100) $500 $300 Enacted tax rate for future years 40% 40% 30% Deferred tax liability (asset) $(40) $(40) $150 $70 3. c During Year 2, the entity decides that it will sell its contracting operations in Year 3. As a result, all temporary differences related to the contracting operations (the $500 taxable temporary difference that existed at the end of Year 1, plus an additional $200 taxable temporary difference that arose during Year 2) are now considered to result in taxable amounts in Year 3 because the contracting operations will be sold in Year 3. 4. d At the end of Year 2, the entity also has $300 of deductible temporary differences ($100 of the temporary difference that existed at the end of Year 1, plus an additional $200 that arose during Year 2) from continuing operations. 5. e For Year 2, the entity has $50 of pretax reported income from continuing operations and $200 of pretax reported income from discontinued operations. 6. f Determination of the entity's [deferred tax asset](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-asset "The deferred tax consequences attributable to deductible temporary differences and carryforwards. A deferred tax asset is measured using the applicable enacted tax rate and provisions of the enacted tax law. A deferred tax asset is reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.") and [liability](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-liability "The deferred tax consequences attributable to taxable temporary differences. A deferred tax liability is measured using the applicable enacted tax rate and provisions of the enacted tax law.") at the end of Year 2 is as follows. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-8EE9BFD4-EBED-4F95-BE72-D7F5954F5E9C-low.gif) Future Years Temporary Differences Year 3 Year 4 Total Discontinued operations $700 $- $700 Continuing operations (200) (100) (300) $500 $(100) $400 Enacted tax rate for future years 40% 30% Deferred tax liability (asset)—net $200 $(30) $170 ##### [740-20-55-5](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:007cc712384c4c7a2a85affc3246214c8afb350fce9a23cc7f446828b4e50e6b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Total deferred tax expense for Year 2 is $100 ($170 - $70). The deferred tax benefit of the deductible temporary differences related to the entity's continuing operations during Year 2 is determined as follows. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-AE11AACF-382C-4CC0-A0A4-22828C8CE5EC-low.gif) Deferred tax asset related to the entity's continuing operations at the end of Year 2 (40 percent of $200 and 30 percent of $100) $(110) Deferred tax asset related to the entity's continuing operations at the beginning of Year 2 (40 percent of $200) (80) Deferred tax benefit for Year 2 $(30) ##### [740-20-55-6](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:c1cef3fef155051c262d8af4554d07aec2cd2cf5009796fe1e5eda7e9331f145 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The deferred tax expense for taxable temporary differences related to the entity's discontinued operations during Year 2 is determined as follows. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-B5B66C89-EDD9-4BE6-ACB6-CC5083AD1470-low.gif) Deferred tax liability at the end of Year 2 (40 percent of $700) $280 Deferred tax liability at the end of Year 1 (30 percent of $500) (150) Deferred tax expense for Year 2 $130 ##### [740-20-55-7](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:dc56e9dd09608ffa2082245834dcd5610568b3fc4b0ea784286001fa35ccee04 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Total tax expense and tax expense allocated to continuing and discontinued operations for Year 2 are determined as follows. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-5DF95978-6869-49AC-8AC1-52B538ED0115-low.gif) Discontinued Operations Continuing Operations Total Pretax reported income $200 $50 $250 "Originating and reversing temporary differences, net" (200) 100 (100) Taxable income $- $150 $150 Current tax expense (40 percent) $- $60 $60 Deferred tax expense (benefit) as determined above 130 (30) 100 Income tax expense $130 $30 $160 ##### [740-20-55-8](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:774e2f50556cf69bdf9403e355814bca84e74b8ac9af168d6fa146924459c158 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If there is only one item other than continuing operations, the portion of income tax expense or benefit for the year that remains after the allocation to continuing operations is allocated to that item. If there are two or more items other than continuing operations, the amount that remains after the allocation to continuing operations is allocated among those other items in proportion to their individual effects on income tax expense or benefit for the year. ##### [740-20-55-9](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:d004ebb487e04cdd2e7bf9ebdec5636168031d180ab9c01919c6a8f5d8e56510 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases both present allocations of income tax to continuing operations when there is only one item other than income from continuing operations: 1. a Loss from continuing operations with an extraordinary gain (Case A) 2. b Income from continuing operations with a loss from discontinued operations (Case B). ##### [740-20-55-10](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:0a51b25c91ba94c1b77bdc924ac506dae616e216fea3fb1dcafbc24f92a38d21 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Case illustrates allocation of income tax expense if there is only one item other than income from continuing operations. The assumptions are as follows: 1. a The entity's pretax financial income and [taxable income](https://asc.understandingaccounting.org/glossary/t/#taxable-income "The excess of taxable revenues over tax deductible expenses and exemptions for the year as defined by the governmental taxing authority.") are the same. 2. b The entity's ordinary loss from continuing operations is $500. 3. c The entity also has a gain on discontinued operations of $900 that is a capital gain for tax purposes. 4. d The tax rate is 40 percent on ordinary income and 30 percent on capital gains. [Income taxes currently payable](https://asc.understandingaccounting.org/glossary/i/#income-taxes-currently-payable-refundable "See Current Tax Expense (or Benefit).") are $120 ($400 at 30 percent). 5. e The entity has determined that the deferred tax asset that would have resulted from the loss from continuing operations if the gain on discontinued operations had not occurred would be expected to be realized (that is, a [valuation allowance](https://asc.understandingaccounting.org/glossary/v/#valuation-allowance "The portion of a deferred tax asset for which it is more likely than not that a tax benefit will not be realized.") would not have been needed). ##### [740-20-55-11](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:c9c33da3ea482aae488461aa32f0288b3458631f491075e472b6f0347d4cc953 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Income tax expense is allocated between the pretax loss from operations and the gain on discontinued operations as follows. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-AC6F6AA5-8751-4C1A-9F1D-88B185E25436-low.gif) Total income tax expense $120 Tax benefit allocated to the loss from operations (200) Incremental tax expense allocated to the gain on discontinued operations $320 ##### [740-20-55-12](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:35f88b71c1812ff3cf3b501b1398e6ca507f8595a34762832e1c956f0b4ca4e4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The effect of the $500 loss from continuing operations was to offset an equal amount of capital gains that otherwise would be taxed at a 30 percent tax rate. However, the guidance in paragraph [740-20-45-7](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-7) requires that an entity determine the tax effects of pretax income from continuing operations by a computation that does not consider the tax effects of items that are not included in continuing operations. The entity has determined that, absent the capital gain from discontinued operations, a valuation allowance would not have been needed on the deferred tax asset resulting from the $500 loss from continuing operations. Thus, $200 ($500 at 40 percent) of tax benefit is allocated to continuing operations. The $320 incremental effect of the gain on discontinued operations is the difference between $120 of total tax expense and the $200 tax benefit allocated to continuing operations. ##### [740-20-55-12A](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-12A) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:978a2c1091f4b12a197bca9e5e3d050539b87d1aa63a59ab8f74b76d5464d681 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Case illustrates allocation of income tax expense if there is only one item other than income from continuing operations. The assumptions are the same as in Case A except that the entity has determined that the deferred tax asset that would have resulted from the loss from continuing operations if the gain on discontinued operations had not occurred would not be expected to be realized (that is, a valuation allowance would have been needed). ##### [740-20-55-12B](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-12B) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:2897751c0eb73ae0e3eab13e7e73ff8deb28f1e4d649f1f164d6050a0a59af8a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Income tax expense is allocated between the pretax loss from operations and the gain on discontinued operations as follows. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-24B9562D-04EF-4259-885C-7784D6C04928-low.gif) Total income tax expense $120 Tax benefit allocated to the loss from operations - Incremental tax expense allocated to the gain on discontinued operations $120 ##### [740-20-55-12C](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-12C) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:bdfc0b4770791f98a0db0f44c77931228e4f525afd3c758c631651067eb73a5a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The effect of the $500 loss from continuing operations was to offset an equal amount of capital gains that otherwise would be taxed at a 30 percent tax rate. However, the guidance in paragraph [740-20-45-7](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-7) requires that an entity determine the tax effects of pretax income from continuing operations by a computation that does not consider the tax effects of items that are not included in continuing operations. The entity has determined that, absent the capital gain from discontinued operations, a valuation allowance would have been needed on the deferred tax asset resulting from the $500 loss from continuing operations. Thus, zero tax benefit is allocated to continuing operations. The $120 incremental income tax expense related to the gain on discontinued operations is the difference between $120 of total tax expense and the zero tax benefit allocated to continuing operations. ##### [740-20-55-13](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:a285e9a63d5fb1f237096c2b6593bdc2aee24da41bef72432e51ef448da2dfee Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Case further illustrates the general requirement to determine the tax effects of pretax income from continuing operations by a computation that does not consider the tax effects of items that are not included in continuing operations. ##### [740-20-55-14](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:131587998fa3dd506067557f766a1883f205f907ddc7a309a811cde6db9e92d9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To illustrate, assume that in the current year an entity has $1,000 of income from continuing operations and a $1,000 loss from discontinued operations. At the beginning of the year, the entity has a $2,000 net operating loss carryforward for which the deferred tax asset, net of its valuation allowance, is zero, and the entity did not reduce that valuation allowance during the year. No tax expense should be allocated to income from continuing operations because the $2,000 loss carryforward is sufficient to offset that income. Thus, no tax benefit is allocated to the loss from discontinued operations. ##### [740-20-55-15](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:50d51d80311b8cdf339879795a9af205ff6654b1b023f840eb9fe4caa65c863d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraphs [740-20-45-7 through 45-8](https://asc.understandingaccounting.org/asc/740/20/#740-20-45-7) for allocation of the tax benefit of a tax credit carryforward that is recognized as a deferred tax asset in the current year. The assumptions are as follows: 1. a The entity's pretax financial income and taxable income are the same. 2. b Pretax financial income for the year comprises $300 from continuing operations and $400 from a gain on discontinued operations. 3. c The tax rate is 40 percent. Taxes payable for the year are zero because $330 of tax credits that arose in the current year more than offset the $280 of tax otherwise payable on $700 of taxable income. 4. d A $50 deferred tax asset is recognized for the $50 ($330 - $280) tax credit carryforward. Based on the weight of available evidence, management concludes that no valuation allowance is necessary. ##### [740-20-55-16](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:ee2d08cb4a2a97b557d4de29a9520dfe78cb7fd2f2e93cb06244e6c78804220d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Income tax expense or benefit is allocated between pretax income from continuing operations and the gain on discontinued operations as follows. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-F543F015-0695-43BD-8B92-6906FE2F161B-low.gif) Total income tax benefit $(50) Tax expense (benefit) allocated to income from continuing operations: Tax (before tax credits) on $300 of taxable income at 40 percent $120 Tax credits (330) (210) Tax expense allocated to the extraordinary gain $160 ##### [740-20-55-17](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-17) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:742fa3aaba326dcb297495c8e0760fac8e1a198e8eb0d91ddc33639934ebd370 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Absent the gain on discontinued operations and assuming it was not the deciding factor in reaching a conclusion that a valuation allowance is not needed, the entire tax benefit of the $330 of tax credits would be allocated to continuing operations. The presence of the gain on discontinued operations does not change that allocation. ##### [740-20-55-18](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:3dfc5c1db18de502cf9fb250a20213bfc43187146e44b4377f420905a711cd33 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Income taxes are sometimes allocated directly to shareholders' equity or to other comprehensive income. This Example illustrates the allocation of income taxes for translation adjustments under the requirements of Subtopic 830-30 to other comprehensive income. In this Example, FC represents units of foreign currency. ##### [740-20-55-19](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-19) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:71e4bbeddbcf04953b60b9772bc9b92d89bd1491e8f7e81e35e9ed4e3603d769 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A foreign subsidiary has earnings of FC 600 for Year 2. Its net assets (and unremitted earnings) are FC 1,000 and FC 1,600 at the end of Years 1 and 2, respectively. ##### [740-20-55-20](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-20) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:3dd25be42366097c443b830feb9621050bb254d5c53589510737fd8b5628255c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The foreign currency is the functional currency. For Year 2, translated amounts are as follows. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-0A3597D4-4C79-4354-BCF0-B318A548D79F-low.gif) Foreign Currency Exchange Rate Dollars "Unremitted earnings, beginning of year" " 1,000 " FC1 = $1.20 " $1,200 " Earnings for the year 600 FC1 = $1.10 660 "Unremitted earnings, end of year" " 1,600 " FC1 = $1.00 " $1,600 " ##### [740-20-55-21](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-21) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:f9468f79c6183d3b59beb9ffaf57615007ce885b3336258fac13dda0a1b8ba3d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A $260 translation adjustment ($1,200 + $660 - $1,600) is reported in other comprehensive income and accumulated in shareholders' equity for Year 2. ##### [740-20-55-22](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-22) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:230e6d70f9f9373d8a52df0174b915a1bb61a5e490b46b6ac0611911b03f2c9e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The U.S. parent expects that all of the foreign subsidiary's unremitted earnings will be remitted in the foreseeable future, and under the requirements of Subtopic 740-30, a deferred U.S. tax liability is recognized for those unremitted earnings. ##### [740-20-55-23](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-23) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:670fbd0820ddfdc6e25b3da65daf04fc10db1fddc3829cae906c47a2cd39471c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The U.S. parent accrues the [deferred tax liability](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-liability "The deferred tax consequences attributable to taxable temporary differences. A deferred tax liability is measured using the applicable enacted tax rate and provisions of the enacted tax law.") at a 20 percent tax rate (that is, net of foreign tax credits, foreign tax credit [carryforwards](https://asc.understandingaccounting.org/glossary/c/#carryforwards "Deductions or credits that cannot be utilized on the tax return during a year that may be carried forward to reduce taxable income or taxes payable in a future year. An operating loss carryforward is an excess of tax deductions over gross income in a year; a tax credit carryforward is the amount by which tax credits available for utilization exceed statutory limitations. Different tax jurisdictions have different rules about whether excess deductions or credits may be carried forward and the length of the carryforward period. The terms carryforward, operating loss carryforward, and tax credit carryforward refer to the amounts of those items, if any, reported in the tax return for the current year."), and so forth). An analysis of the net investment in the foreign subsidiary and the related deferred tax liability for Year 2 is as follows. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-8C722B72-619E-4780-8276-FF9C06100B97-low.gif) . Net Investment Deferred Tax Liability "Balances, beginning of year" " $1,200 " $240 Earnings and related taxes 660 132 Translation adjustment and related taxes (260) (52) "Balances, end of year" " $1,600 " $320 ##### [740-20-55-24](https://asc.understandingaccounting.org/asc/740/20/#740-20-55-24) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:34.849Z to 2026-09-10T01:17:34.849Z Record version: sha256:1f356b32a4637e811d73ee9cbcc9ad5345d7db56ac9868f1c9864608bc404362 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For Year 2, $132 of deferred taxes are charged against earnings, and $52 of deferred taxes are reported in other comprehensive income and accumulated in shareholders' equity. Source downloaded (UTC): 2026-09-10T01:17:36.565Z to 2026-09-10T01:17:36.565Z Record version: sha256:7aed054a750917eb16da33920893367b00d1717fa7b68fa63d4508e42453366e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-20-60: 60 Relationships [Read section](https://asc.understandingaccounting.org/asc/740/20/#60-relationships) SEC content: no #### Investments—Debt and Equity Securities ##### [740-20-60-1](https://asc.understandingaccounting.org/asc/740/20/#740-20-60-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:17:36.565Z to 2026-09-10T01:17:36.565Z Record version: sha256:615b626c88601a64256b204b21015445e2d10abb22140a9b5406660666ee8534 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2016-01](https://asc.understandingaccounting.org/updates/asu-2016-01/).