ACCA Strategic Professional · Strategic Business Reporting (International) · Income taxes
Orion Group has an uncertain tax treatment where there is a wide range of possible outcomes, such as settlement amounts of $0, $200,000, $500,000 and $800,000 with differing probabilities. Which measurement method is IFRIC 23 likely to regard as better predicting the resolution of the uncertainty?
Expected value is likely the better method, because it sums probability-weighted outcomes across a wide range of possible results. The most likely amount is more suitable where outcomes are binary or concentrated on one value. The entity picks whichever method better predicts how the uncertainty will be resolved.
- AThe most likely amount, being the single outcome with the highest probability
- BThe expected value, being the sum of probability-weighted amountsCorrect
- CThe minimum amount that is virtually certain to be paid
- DThe amount claimed in the return, until the authority challenges it
Explanation
IFRIC 23 allows the entity to use whichever method better predicts resolution. The expected value is appropriate where there is a range of possible outcomes that are not binary or clustered. The most likely amount suits binary outcomes or those concentrated on one value. A virtual certainty threshold is not in the interpretation.
Did you get it right without looking?
One question tells you little. A timed set on Income taxes shows your real accuracy, how long you take and where you lose marks.
More Income taxes questions
- Paragon Group acquires Sable Co. Sable has unused tax losses that did not meet recognition criteria at the acquisition date, so no deferred …
- Halden Co has unused tax losses of $3m. Tax rate is 30%. Halden has taxable temporary differences of $1m expected to reverse next year, and …
- Tau Co revalues land from a carrying amount of $800,000 (original cost $800,000, tax base $800,000) to $1,100,000. If the land is sold, a ta…
- At 31 December 20X5, Rento Co's financial statements showed a current tax liability estimate of $420,000 for the year. In 20X6 the tax autho…
- Rho Co has unused tax losses of $600,000 and a tax rate of 20%. It has existing taxable temporary differences of $150,000 that will reverse …
- Hotel Co's finance director proposes omitting a current tax provision for an aggressive transfer-pricing position that the tax authority is …