Tax Basis FS - Presentation of 263A Adjustment

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#1
Wiles  
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In preparing a tax basis financial statement for a manufacturing client, how should the 263A capitalization be presented.

For example, the client's internal P&L shows Sales, COGS (which includes materials, labor and direct factory overhead costs), Gross Profit, then Operating Expenses. The 263A adjustment pulls a portion of those Operating Expenses into Inventory.

How would you present the 263A adjustment on the tax basis statement of income?

Would you list all of the operating expenses at their gross amount, then add a contra expense to the bottom of the list that shows the amount of these expenses that have been capitalized into inventory at the end of the year?

Should the change in the capitalized 263A costs from beginning of year to end of year, be presented in the COGS section or should this be shown in the Operating Expense section?
 

#2
TTMM  
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I would show the contra account at the bottom of both the COGS for that portion of the COGS expenses that are capitalized and at the bottom of the operating expenses for that portion of the operating expenses that are capitalized.

You might also think about breaking up the operating expenses into a direct category for those that were used in the 263A calculation and an indirect for those that were not used in the calculation if its not too confusing.
 


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