Capitalization of Excise Tax for Manufacturing Co

US QuickBooks Premier : 2009: Accountant

Im fixing up the books for a liquor manufacturing company and I have a question regarding capitalization of cost. They have four main stages of production: (1) they purchase the raw materials from their supplier and have the materials transferred to a bottling company (third party) which stores the materials until a production run can be authorized; (2) a production run is authorized and cases of six bottles each are made; (3) before the bottles can be released the bottling company (third party) charges the manufacturing company an federal excise tax (based on the amount of alcohol in the bottles) for the distillation and charge of service; (4) after the tax has been paid the bottles are released and transferred to the company warehouse for sale to distributors.

Here is my question: can I capitalize the cost of the FET into the cost of the bottles? Would the tax be considered a direct production cost (as it is necessary for the production of the cases) or would it be a presale cost to be expensed? GAAP says that production costs are to be capitalized and presale costs to be expensed but UNICAP says that both production costs and presale costs can be capitalized. If I don't capitalize the cost then my inventory is just the sum of its parts which can't be right either so I can either include just the distillation cost and exclude the tax portion or include everything.

I do GL's not taxes so this is not my strong point. Keep in mind that there is no controller, they have no concept of cost accounting, everything is thrown into COGS (which is so annoying), their accounting is outsourced to Iowa where they just do taxes, and I have to do a manufacturing summary from what I can piece together from their many excel spreadsheets that are dubious at best. Any help would be great. Thanks.

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jeannetara

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11/04/09 8:59pm PST

The solution

Gus,

I've been out of the GAAP world a long time. However, if your client is not a publicly traded corp, GAAP is probably not the correct authority. Chances are the financial reporting is tax basis of accounting, therefore I would lean toward UNICAP for financial statement purposes.

That said how do you capitalize costs in to inventory in QB? I've got a work around, but it might be more trouble than is worthwhile.

Jeanne Tarazevits, CPA, CITP
Inventory Guru
Retail * Distribution * E-Commerce * Manufacturing * Route Delivery
I've got an app for that!
www.tarabyte.com

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gusb83

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03/19/10 3:05pm PDT

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Thank you for the answer, I ended up doing this for them yesterday, its not pretty but they insisted on making it part of their inventory. The rate is fixed at 9.63 so I set it up as a service item as part of the assembly. I created a contra asset of the inventory asset account called FET and linked it up to the service item. When they create their assembly they are pretty much prepaying for all of their FET at once but the credit offsets it so as not to overstate the value of the inventory. When they do incur the expense, they are just going to decrease the balance in the FET account and it is transferred to the COGS when its sold. Nothing hits the expense account until it is sold it stays in the inventory contra asset account. Like I said, its not pretty but it works.

Hope this helps. If so please mark as SOLVED and rate the answer. If you live in LA look me up on the ProAdvisor website.

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