21, the actual average and closing rates for the interim period are used. Entities do not anticipate some future changes in foreign exchange rates in the remainder of the current financial year in translating foreign operations at an interim date.
Editorial note: Substituted by improvements project standard IAS 21 with effect for annual periods beginning on or after 1 January 2005. If an entity applies this Standard for an earlier period, these amendments shall be applied for that earlier period. Previously "IAS 21, The Effects of Changes in Foreign Exchange Rates, specifies how to translate the financial statements for foreign operations into the reporting currency, including guidelines for using historical, average, or closing foreign exchange rates and guidelines for including the resulting adjustments in income or in equity. Consistent with IAS 21, the actual average and closing rates for the interim period are used. Enterprises do not anticipate some future changes in foreign exchange rates in the remainder of the current financial year in translating foreign operations at an interim date."

Interim Period Manufacturing Cost Variances
28 Price, efficiency, spending, and volume variances of a manufacturing enterprise are recognised in income at interim reporting dates to the same extent that those variances are recognised in income at financial year end. Deferral of variances that are expected to be absorbed by year end is not appropriate because it could result in reporting inventory at the interim date at more or less than its portion of the actual cost of manufacture.
Foreign Currency Translation Gains and Losses
29 Foreign currency translation gains and losses are measured for interim financial reporting by the same principles as at financial year end.
30 IAS 21 The Effects of Changes in Foreign Exchange Rates specifies how to translate the financial statements for foreign operations into the presentation currency, including guidelines for using average or closing foreign exchange rates and guidelines for recognising the resulting adjustments in profit or loss or in equity. Consistently with IAS

Net Realisable Value of Inventories
26 The net realisable value of inventories is determined by reference to selling prices and related costs to complete and dispose at interim dates. An enterprise will reverse a writedown to net realisable value in a subsequent interim period only if it would be appropriate to do so at the end of the financial year.
Estimating LIFO Inventories at Interim Dates
27 […]
Editorial note: Deleted by improvements project standard IAS 2 with effect for annual periods beginning on or after 1 January 2005. If an entity applies this Standard for an earlier period, these amendments shall be applied for that earlier period. Previously "A reduction in the quantity of LIFO inventories is not reflected in an inventory valuation at an interim date if that reduction is expected to be restored by year end. Such a temporary reduction may result, for example, from normal seasonal fluctuations in inventory quantities or from a one-time event beyond the control of the management of the enterprise such as a shipping strike. Excluding the effects of temporary reductions in LIFO inventories is consistent with (and not an exception to) the provision of paragraph 28 of this Standard that the frequency of an enterprise's reporting (annual, half-yearly, or quarterly) should not affect the measurement of its annual results. This principle is justified because investors and creditors can otherwise be misled by the potentially significant effect on reported earnings that would result from a temporary reduction of low-cost LIFO inventory that is expected to be replenished at much higher current costs. Also, for many companies, the use of LIFO to measure inventory costs in financial statements is income tax driven. Since income taxes are assessed on an annual basis in most jurisdictions, LIFO inventory measurements are also made on an annual basis, an approach consistent with the use of the estimated average annual income tax rate as discussed in paragraph 12 of this Appendix."

24 Depreciation and amortisation for an interim period is based only on assets owned during that interim period. It does not take into account asset acquisitions or dispositions planned for later in the financial year.
Inventories
25 Inventories are measured for interim financial reporting by the same principles as at financial year-end. IAS 2 Inventories establishes standards for recognising and measuring inventories. Inventories pose particular problems at any financial reporting date because of the need to determine inventory quantities, costs, and net realisable values. Nonetheless, the same measurement principles are applied for interim inventories. To save cost and time, entities often use estimates to measure inventories at interim dates to a greater extent than at annual reporting dates. Following are examples of how to apply the net realisable value test at an interim date and how to treat manufacturing variances at interim dates.
Editorial note: Substituted by improvements project standard IAS 2 with effect for annual periods beginning on or after 1 January 2005. If an entity applies this Standard for an earlier period, these amendments shall be applied for that earlier period. Previously "Inventories are measured for interim financial reporting by the same principles as at financial year end. IAS 2, Inventories, establishes standards for recognising and measuring inventories. Inventories pose particular problems at any financial reporting date because of the need to determine inventory quantities, costs, and net realisable values. Nonetheless, the same measurement principles are applied for interim inventories. To save cost and time, enterprises often use estimates to measure inventories at interim dates to a greater extent than at annual reporting dates. Following are examples of how to apply the net realisable value test at an interim date, how interim LIFO inventories should be determined, and how to treat manufacturing variances at interim dates."

22 To illustrate, an enterprise that reports quarterly has an operating loss carryforward of 10,000 for income tax purposes at the start of the current financial year for which a deferred tax asset has not been recognised. The enterprise earns 10,000 in the first quarter of the current year and expects to earn 10,000 in each of the three remaining quarters. Excluding the carryforward, the estimated average annual income tax rate is expected to be 40 per cent. Tax expense is as follows:
     1st Quarter    2nd Quarter    3rd Quarter    4th Quarter    Annual
Tax expense     3,000    3,000    3,000    3,000    12,000
Contractual or Anticipated Purchase Price Changes
23 Volume rebates or discounts and other contractual changes in the prices of raw materials, labour, or other purchased goods and services are anticipated in interim periods, by both the payer and the recipient, if it is probable that they have been earned or will take effect. Thus, contractual rebates and discounts are anticipated but discretionary rebates and discounts are not anticipated because the resulting asset or liability would not satisfy the conditions in the Framework that an asset must be a resource controlled by the enterprise as a result of a past event and that a liability must be a present obligation whose settlement is expected to result in an outflow of resources.
Depreciation and Amortisation

20 The benefits of a tax loss carryback are reflected in the interim period in which the related tax loss occurs. IAS 12 provides that "the benefit relating to a tax loss that can be carried back to recover current tax of a previous period should be recognised as an asset". A corresponding reduction of tax expense or increase of tax income is also recognised.
21 IAS 12 provides that "a deferred tax asset should be recognised for the carryforward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilised". IAS 12 provides criteria for assessing the probability of taxable profit against which the unused tax losses and credits can be utilised. Those criteria are applied at the end of each interim period and, if they are met, the effect of the tax loss carryforward is reflected in the computation of the estimated average annual effective income tax rate.

19 Some tax jurisdictions give taxpayers credits against the tax payable based on amounts of capital expenditures, exports, research and development expenditures, or other bases. Anticipated tax benefits of this type for the full year are generally reflected in computing the estimated annual effective income tax rate, because those credits are granted and calculated on an annual basis under most tax laws and regulations. On the other hand, tax benefits that relate to a one-time event are recognised in computing income tax expense in that interim period, in the same way that special tax rates applicable to particular categories of income are not blended into a single effective annual tax rate. Moreover, in some jurisdictions tax benefits or credits, including those related to capital expenditures and levels of exports, while reported on the income tax return, are more similar to a government grant and are recognised in the interim period in which they arise.
Tax Loss and Tax Credit Carrybacks and Carryforwards

17 If the financial reporting year and the income tax year differ, income tax expense for the interim periods of that financial reporting year is measured using separate weighted average estimated effective tax rates for each of the income tax years applied to the portion of pre-tax income earned in each of those income tax years.
18 To illustrate, an enterprise's financial reporting year ends 30 June and it reports quarterly. Its taxable year ends 31 December. For the financial year that begins 1 July, Year 1 and ends 30 June, Year 2, the enterprise earns 10,000 pre-tax each quarter. The estimated average annual income tax rate is 30 per cent in Year 1 and 40 per cent in Year 2.
     Quarter Ending 30 Sept. Year 1    Quarter Ending 31 Dec. Year 1    Quarter Ending 31 Mar. Year 2    Quarter Ending 30 June Year 2    Year Ending 30 June Year 2
Tax expense    3,000    3,000    4,000    4,000    14,000
Tax Credits

15 To illustrate the application of the foregoing principle, an enterprise reporting quarterly expects to earn 10,000 pre-tax each quarter and operates in a jurisdiction with a tax rate of 20 per cent on the first 20,000 of annual earnings and 30 per cent on all additional earnings. Actual earnings match expectations. The following table shows the amount of income tax expense that is reported in each quarter:
     1st Quarter    2nd Quarter    3rd Quarter    4th Quarter    Annual
Tax expense     2,500    2,500    2,500    2,500    10,000
10,000 of tax is expected to be payable for the full year on 40,000 of pre-tax income.
16 As another illustration, an enterprise reports quarterly, earns 15,000 pre-tax profit in the first quarter but expects to incur losses of 5,000 in each of the three remaining quarters (thus having zero income for the year), and operates in a jurisdiction in which its estimated average annual income tax rate is expected to be 20 per cent. The following table shows the amount of income tax expense that is reported in each quarter:
     1st Quarter    2nd Quarter    3rd Quarter    4th Quarter    Annual
Tax expense     3,000    (1,000)    (1,000)    (1,000)    0
Difference in Financial Reporting Year and Tax Year

14 To the extent practicable, a separate estimated average annual effective income tax rate is determined for each taxing jurisdiction and applied individually to the interim period pre-tax income of each jurisdiction. Similarly, if different income tax rates apply to different categories of income (such as capital gains or income earned in particular industries), to the extent practicable a separate rate is applied to each individual category of interim period pre-tax income. While that degree of precision is desirable, 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.