Tax case meno Research Paper Example | Topics and Well Written Essays - 1000 words

Tax case meno - Research Paper Example Normally, the cost of tools forms part of capital goods that the company requires to run its operation. Under the IRC section 263A, the uniform capitalization rule dictates that the taxpayer should produce information for all direct costs and certain in direct cost concerning tangible and real property. The law defines tangible and real property as those that lead to production such as to construct, build, install, manufacture, develop, improve, create, raise or grow (DiNardo, Baldwin and Harris 106). From this provision of the law, it is evident that the allowances that the company pays to cater for the cost of various tools of trade fall under capital goods and that they are tangible in nature. If this were the case, the provision of IRC section 263A, states that the taxpayer should treat such information as direct because they affect the cost of capital. It follows therefore, that Cambro Construction Company should treat the allowances it reimburses as cost for capital goods. Comb ro Company should treat this case as cost associated with tangible assets, which it uses to aid production. Therefore, the tax treatment for this case should be ordinary. Under this category, the taxpayer should accumulate all the information concerning this cost and treat them a cost of assets used in production. Thus, Cambro Construction Company should prepare tax report concerning the accumulated cost it incurred to reimburse cost for the capital goods. For a cost to qualify as capitalization cost under IRC section 263A, it must fall into the capital accounts as defined by section 1.446-1(c) (1) (ii). This provision tends to define the treatment of cost incurred by a company to buy assets or other related costs. The section 263A states that: Except as otherwise provided, direct and indirect costs that directly benefit or are incurred by reason of the performance of production or resale activities must be capitalized to the property produced or acquired for resale (DiNardo, Baldwi n and Harris 106). The provision of section 1.263A-1(e) (3) (iii) gives examples of indirect costs which the taxpayers should capitalize are tools and equipment. Further, this provision indicates that the producers must capitalize costs other interest whether incurred before, during, and after production period of property. Arguing from this provision, the cost incurred by Cambro Construction Company to reimburse the capital cost of its carpenters fall under the indirect costs. Thus, Cambro Construction Company should treat such indirect cost as provided for in the section 263A of the IRC. The must record this information whether it incurred it before, during, or after the production period. This implies that the law does not exempt the company from compiling tax information concerning the property that it acquired during its construction period. Largely, the fact that Cambro Construction Company does its activities with an aim of reselling them further makes it necessary for it to capitalize this cost. Cases bordering incidental repair of property seems to be closer to the above facts but not exact. In incidental repair, the taxpayer deducts a given cost to repair of the property with a view of prolonging the use of that property. Section 167 provides the treatment of such repairs. When a taxpayer makes full replacement for the property, the treatment that follows should be capitalization or depreciation as

The Use of Financial Tools in the Management Process Term Paper

The Use of Financial Tools in the Management Process - Term Paper Example Investments have related interest expense amounts. The same return shows the interest rate that is used to generate a resultant zero net present value. The present value is arrived at by using an interest rate in the computation. The annual or periodic cash inflow is collected. Examples of inflows of cash are: ? 260 for year 1, ? 280 for year 2, ? 250 and for year 3. The interest rate is given. The periodic or annual inflows of cash are multiplied by the present value factor (interest rate). The result of the multiplication activity is the present value amount of the periodic inflows of cash (Hilton, 2011). To computation of the rate of internal return, the present values are determined. Next, the decision maker must equate the cost of the investment as the total inflows of cash. Subtracting the two accounts, the net present value is nil (Daft, 2011). Next, the internal rate of return can be easily computed (Sollenberger, 2008). The total present value of net inflows of cash is divid ed by the total inflows of cash. The computation outcome is traced is plotted on the net present value table. The decision maker searches for the column where the division result falls. Further, the internal rate of return (IRR) tool is used to compare the financial performance of two or more entities. For example, the internal rate of return of Reagan Company is 6 percent. Further, Washington Company has an internal rate of return of 8 percent. Comparing the two companies’ internal rate of return, Washington Company has a better internal rate of return. The company with a higher internal rate of return output shows a financially better business image (Gitman, 2008). Compared with the net present value decision-making tool, the internal rate of return is a better management tool. Most decision makers prefer the internal rate of return. The internal rate of return places importance on times’ effect on money, cash flows. Time value analysis includes placing a higher value on the earlier collection or payment of cash amounts over the same amount of cash collected at later years.