Accounting Methods: Inventory Valuation Methods

Question 1

What is subject to the uniform capitalization rules of IRC Section 263A?

Answer 1

Warehousing costs are an indirect cost required to be capitalized by producers of real and tangible personal property.

Resellers of personal property that have average annual gross receipts for the preceding 3-taxable-year period exceeding $10 million must capitalize warehousing costs as well.

Question 2

Exceptions to the uniform capitalization rules of IRC Section 263A include

Answer 2

Editorial costs incurred by a freelance writer (IRC 263A(c)(1))
Research and experimental expenditures (IRC 263A(c)(2))
Mine development and exploration costs (IRC 263A(c)(3))

Question 3

Under the uniform capitalization rules

Answer 3

certain nonmanufacturing costs such as selling, research, product liability, and service department costs are not capitalized

Question 4

Generally, what manufacturing overhead costs are capitalized?

Answer 4

indirect labor, indirect materials, purchasing costs, and engineering

Question 5

What is always capitalized?

Answer 5

Off-site storage costs, purchasing, and repackaging are capitalized into the finished product

Question 6

The uniform capitalization rules apply to

Answer 6

real or tangible personal property produced by the taxpayer for use in a trade or business or in an activity engaged in for profit,

real or tangible personal property produced by the taxpayer for sale to customer, or

real or personal property (both tangible and intangible) acquired by the taxpayer for resale

Question 7

LIFO during periods of rising prices will result in

Answer 7

Higher Cost of Goods Sold
Lower Taxable Income
Lower Tax liability

Question 8

What inventory costs should never be capitalized?

Answer 8

General Administrative expenses such as:
Advertising 
research
selling
distribution
marketing