Bancroft Corporation (BC) has just completed its analysis of the income taxes that it believes it will have to pay to the government either this year or in future years. Although he feels that the final estimate of income taxes payable is probably fine, Jason Bacon, the controller, is a bit concerned, because some of the assumptions underlying the calculations required a fair bit of judgement. In one case, the company has deducted an item from taxable income, resulting in less taxes payable. The taxes payable amount is calculated as the dollar amount of the deduction times the tax rate. The controller is worried that if BC is audited by the Canada Revenue Agency, it may deny the deduction and BC would subsequently have to pay additional income taxes. The tax rates are not expected to change. Jason has reasonable tax knowledge but does not consider himself an expert.

Instructions
The chapter discusses several concepts relating to dealing with uncertainty. These include existence uncertainty, outcome uncertainty, and measurement uncertainty.

a. Define each of these terms.

b. Discuss how each of these terms relates to the measurement of the income tax liability.