C Examples of the Use of EstimatesC Examples of the Use of Estimates

C Examples of the Use of Estimates

The following examples illustrate application of the principle in paragraph 41.

C1 Inventories: Full stock-taking and valuation procedures may not be required for inventories at interim dates, although it may be done at the end of an annual reporting period. It may be sufficient to make estimates at interim dates based on sales margins.

C2 Classifications of current and non-current assets and liabilities: Entities may do a more thorough investigation for classifying assets and liabilities as current or non-current at the end of annual reporting periods than at interim dates.

C3 Provisions: Determination of the appropriate amount of a provision (such as a provision for warranties, environmental costs and site restoration costs) may be complex and often costly and time‑consuming. Entities sometimes engage outside experts to assist in the annual calculations. Making similar estimates at interim dates often entails updating of the prior annual provision rather than the engaging of outside experts to do a new calculation.

C4 Pensions: AASB 119 Employee Benefits requires an entity to determine the present value of defined benefit obligations and the fair value of plan assets at the end of each reporting period and encourages an entity to involve a professionally qualified actuary in measurement of the obligations. For interim reporting purposes, reliable measurement is often obtainable by extrapolation of the latest actuarial valuation.

C5 Income taxes: Entities may calculate income tax expense and deferred income tax liability at annual dates by applying the tax rate for each individual jurisdiction to measures of income for each jurisdiction. Paragraph B14 acknowledges that while that degree of precision is desirable at the end of interim reporting periods as well, it may not be achievable in all cases, and a weighted average of rates across jurisdictions or across categories of income is used if it is a reasonable approximation of the effect of using more specific rates.

C6 Contingencies: The measurement of contingencies may involve the opinions of legal experts or other advisers. Formal reports from independent experts are sometimes obtained with respect to contingencies. Such opinions about litigation, claims, assessments and other contingencies and uncertainties may or may not also be needed at interim dates.

C7 Revaluations and fair value accounting: AASB 116 Property, Plant and Equipment allows an entity to choose as its accounting policy the revaluation model whereby items of property, plant and equipment are revalued to fair value. Similarly, AASB 140 Investment Property requires an entity to measure the fair value of investment property. For those measurements, an entity may rely on professionally qualified valuers at the end of annual reporting periods though not at the end of interim reporting periods.