Apportionment definition

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What is an Apportionment?

An apportionment is the separation of revenues, expenses, or profits, which are then assigned to different accounts, departments, or subsidiaries. The concept is used in particular for the assignment of profits to different geographic regions of a business, which impacts the taxable profits reported to different governments. This can result in the recognition of more taxable income in jurisdictions with low tax rates, and less taxable income in jurisdictions with high tax rates.

The apportionment concept also applies to insurance, where the loss experienced by an insured party is allocated among the various insurers who are providing coverage.

Examples of Apportionment

The apportionment concept can arise within many parts of a business. Here are several examples:

  • Cost apportionment. A company shares a single office space and allocates electricity, water, and internet costs among its departments (e.g., HR, marketing, IT) based on usage or the square footage occupied by each.

  • Revenue apportionment. Two businesses partner to deliver a service, and they apportion the revenue based on the contribution each makes to the service (e.g., one business provides the product while the other handles marketing and distribution).

  • Time apportionment. A graphic designer works for both marketing and product development teams. Her salary is apportioned based on the time spent working for each team.

  • Tax apportionment. A business operating in multiple states apportions its taxable income to each state based on revenue generated, property located, or employees working in each location.

  • Budget allocation. A marketing budget is apportioned among different channels, such as social media, print advertising, and events, based on expected return on investment.

  • Profit sharing. A company apportions profit among employees as bonuses based on performance metrics or company-wide policies.

These examples highlight the variety of ways in which apportionment can be used to allocate resources in a business setting.