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CONTRACTUAL volume rebates / discounts that are PROBABLE of being earned by year-end (because the entity is on track to hit the threshold) should be anticipated in interim periods. DISCRETIONARY rebates should:
ABe anticipated proportionally throughout the year
BBe anticipated only in Q4
CNOT be anticipated — they do not satisfy the asset/liability definition until the discretionary decision is made
DAlways be anticipated for consistency
Answer & Solution
Correct answer: C. NOT be anticipated — they do not satisfy the asset/liability definition until the discretionary decision is made
Contractual rebates with probable threshold achievement are anticipated (both payer and recipient). Discretionary rebates fail the asset/liability test (no past event creating an obligation) and are NOT anticipated.
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