Measurement begins only after a tax position passes its separate recognition test. Sort the supported settlement benefits from largest to smallest. Add their probabilities in that order, then select the largest amount whose cumulative probability is greater than 50 percent. Do not calculate an expected value.
Use the probability staircase
ASC 740-10-30-7 states the largest-benefit-greater-than-50-percent measurement rule. The legal outcomes and probabilities remain supplied judgments.
Assume possible sustained benefits are $60,000 at 15 percent, $45,000 at 40 percent, $25,000 at 30 percent, and zero at 15 percent. Cumulative probability is 15 percent at $60,000 and 55 percent at $45,000, so the recognized benefit is $45,000. The weighted average would answer a different question. Check that probabilities total 100 percent and preserve each outcome. This schedule does not establish technical merits or estimate a real settlement distribution.
If two outcomes share a benefit amount, combine their probabilities before building the staircase and document the ordering control.
Put the concept to work
Analyze this concept
- Order supplied settlement benefit amounts from largest to smallest, accumulate probabilities, and select the first amount whose cumulative probability exceeds 50 percent.
Learning resources
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