Note 2. Significant Accounting Estimates, Assumptions and Judgements (a) Capitalised Exploration and Evaluation Expenditure (b) Share-based Payments (c) Income Tax 48 Karoon Gas Australia Ltd  Annual Report 2011 NOTES TO THE FINANCIAL STATEMENTS CONTINUED FOR THE FINANCIAL YEAR ENDED 30 JUNE 2011 Revenues and expenses and the carrying amounts of certain assets and liabilities are often determined based on estimates and  assumptions of future events. In applying the Group’s significant accounting policies, the Board of Directors and management  evaluate estimates and judgements based on historical knowledge and best available current information. Estimates assume a  reasonable expectation of future events and are based on current trends and economic data obtained both externally and within  the Group. Significant estimates, assumptions and/or judgements made by the Board of Directors and management in the preparation of the  financial statements were: The future recoverability of capitalised exploration and evaluation expenditure is dependent on a number of factors, including  whether the Group decides to exploit the related exploration permit itself or, if not, whether it successfully recovers the related  exploration and evaluation asset through sale. Factors that could affect the future recoverability include the level of economically  recoverable reserves, future technological changes which could impact the cost of development, future legal changes (including  changes to environmental and restoration obligations) and changes to commodity prices. To the extent that capitalised exploration  and evaluation expenditure is determined not to be recoverable in the future, financial results and net assets will be reduced  during the financial period in which this determination is made. In addition, exploration and evaluation expenditure is carried forward on the basis that exploration and evaluation activities in the  areas of interest have not at the end of the reporting period reached a stage that permits a reasonable assessment of the  existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the areas  of interest are continuing. To the extent it is determined in the future this capitalised expenditure should be written off, financial  results and net assets will be reduced during the financial period in which this determination is made. Information on the reasonable existence or otherwise of economically recoverable reserves is progressively gained through  geological analysis and interpretation, drilling activity and prospect evaluation during a normal exploration permit term. A reasonable assessment of the existence or otherwise of economically recoverable reserves can generally only be made,  therefore, at the conclusion of those exploration and evaluation activities. The Group measures the cost of share-based payment transactions with Directors and employees by reference to the fair value  of the options at the date they were granted. Fair value is ascertained using the Black-Scholes option pricing model taking into  account the terms and conditions upon which the options were granted. The accounting estimates and assumptions relating to  share-based payments would have no impact on the carrying amounts of assets and liabilities within the next reporting period but  may impact expense and equity. The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. There are many transactions  and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The  Group estimates its tax liabilities based on the Group’s understanding of the tax law. Where the final tax outcome of these  matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax  balances in the financial period in which such determination is made. The Group has not recognised deferred tax assets in respect of tax losses and temporary tax differences as the future utilisation  of these losses and temporary tax differences is not considered probable at this point in time. Assessing the future utilisation of  tax losses and temporary tax differences requires the Group to make significant estimates related to expectations of future  taxable income. Estimates of future taxable income are based on forecast cash flows from operations and the application of  existing tax laws. To the extent that future utilisation of these tax losses and temporary tax differences becomes probable, this  could result in significant changes to deferred tax assets recognised, which would in turn impact future financial results.