Accounts receivable $26,000,000 Allowance for uncollectible accounts $ (600,000) GAAP basis of accounts receivable $25,400,000 Tax basis of accounts receivable $26,000,000 Deferred tax asset computation is based on the difference between tax basis and the GAAP basis of the asset, caused by use of the allowance method
for uncollectible accounts in financial statements and the direct-write-off method on the tax return.
Thus, if the allowance method
is used, 2012 COGS (before adjustment) will be $84,800, which is $2,000 (500 units multiplied by $4 per unit) more than the year two benchmark.
According to this IRC section, banks with $500,000,000 or less adjusted basis in assets are allowed a deduction for a reasonable addition to bad debts (i.e., may use the allowance method
Traditional introductory accounting courses using the debit/credit methodologies cover between 11 and 14 chapters including the accounting cycle (Chapters 1 through 6), cash (petty cash and bank reconciliations), accounts receivable (the allowance method), inventory (inventory valuation methods and lower of cost or market), marketable securities, intangible assets, depleting natural resources, and fixed assets and depreciation.
The text explains the allowance method and then explains in depth the two methods making the bad-debt estimation.
It is essentially the opposite of the scheduled cash allowance method
. Restorative procedures and more expensive procedures, such as orthodontia, were more likely to be paid for under this method than were preventive procedures.
The "repair or improvements" section of the proposed regulations can be divided into four key segments: (i) the operative rule, requiring the capitalization of costs incurred either to materially increase the value of a unit of property, or to restore a unit of property, (ii) standards for determining whether the value of a unit of property has been materially increased, (iii) standards for determining whether the unit of property has been restored, and (iv) an elective repair allowance method.
Along with the definition of "unit of property," perhaps the most significant development proposed by Treasury is an optional repair allowance method. (37) In lieu of applying the foregoing rules to determine whether an expenditure is required to be capitalized as an improvement, the taxpayer instead can elect to deduct an amount up to the applicable "repair allowance amount," and capitalize the excess.
Although taxpayers may not "cherry pick" actual MACRS property in applying the proposed repair allowance method, the proposed regulations do not expressly prohibit the taxpayer from doing so in designating non-MACRS property as being within the scope of the election.
It allows taxpayers to apply the proposed repair allowance method to all of its property not already subject to some other repair allowance election, regardless of whether those assets are otherwise MACRS, ACRS, or pre-ACRS property.