Question

Which taxpayer is NOT subject to the uniform capitalization rules?

a. Henri Jacobi, who make furniture that he sells to furniture retailsers, and whose gross receipts average $15,000 per year. Henri used the accrual method of accounting for his inventory.

b. April Goodwin, who makes quilts that she sells at craft fairs and flea markets, and whose recetpts average $4,000 per year. April used the accrual method of accounting for her inventory.

c. Jerry Brown, who seeks cosmetics that she acquires for resale, and whose gross receipts average $6,000 per year

d. Phil Hatcher, who acquires jewelry for resale, and whose grosds receipts average $65,000,000 per year.

Answer 1

ANSWER- C) JERRY BROWN, WHO SEEKS COSMETICS THAT SHE ACQUIRED FOR RESALE WHOSE AVERAGE GROSS RECEIPTS IS $6000 PER YEAR IS NOT SUBJECTED TO THE UNIFORM CAPITALISATION RULES AS ACCORDING TO THE UNIFORM CAPITALISATION RULES, ALL THE COST INCUR DURING

i) the making or production of real property or personal property by taxpayer

ii) real and tangible assets which is aquired for resale, are to be capitalised.

BUT THERE IS EXCEPTION TO THIS RULE WHICH STATED AS IF THE ASSET WHICH IS ACQUIRED FOR RESALE HAVE AVERAGE ANNUAL GROSS RECEIPTS ARE $10,000,000 OR LESS IS EXMPTED FROM THIS RULE. THE RESALE RULE IS APPLICABLE ONLY FOR LARGE BUSINESSES WHOSE AVERAGE GROSS RECEIPTS IS $10,000,000 OR MORE.

THEREFORE, C) IS NOT SUBJECTED TO THE UNIFORM CAPITALISATION RULES AS THE RESALE PROPERTY SHE ACQUIRE, ITS AVERAGE ANNUAL GROSS RECEIPTS IS LESS THAN $10,000,000 OR LESS WHICH IS EXMPTED TO THE UNIFORM CAPITALISATION RULE.

IN A) HENRI MAKES OR PRODUCE THE FURNITURE FOR THE BUSINESS, SO IT FOLLOW THE i] STEP OF UNIFORM CAPITALISATION RULE i.e the tangible personal property produced by the taxpayer is subjected to uniform capitlisation rule.

IN B) APRIL, MAKES QUILTS AND SELL AS IT IS ALSO SUBJECTED TO UNIFORM CAPITALISATION RULE BECAUSE APRIL PRODUCE PERSONAL TANGIBLE ASSETS AND IT IS SUBJECTED TO THE RULE.

IN D) IT IS ALSO SUBJECTED TO THE UNIFORM CAPITALISATION RULE AS IT IS RESALE AND IT'S  AVERAGE ANNUAL GROSS RECEIPTS IS MORE THAN $10,000,000.