Discussion:Change of Accounting Method?

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Discussion Forum Index --> Accounting Questions --> Change of Accounting Method?


Jeff-Ohio (talk|edits) said:

30 April 2013
Boat Dealer.

From 2006 through 2011, we capitalized the interest of the floor plan (boats).

In 2012, we realized this was incorrect and that we should be expensing interest annually.

In 2012, we filed a 3115 (not automatic), paid the fee, and requested a change in accounting method to begin capitalizing interest.

We are now workingon the 2012 financials and I'm reading the comp and review book. It says for a correction of an error, I needed to reissue the 2011 financials, but for a change in accounting method, I just need to show the comparative (2011 financials) reflecting the change.

I REALLY don't want to re-issue the financials, which would (I assume), mean amending the tax return. Client doesn't care.

Problem is my 1-1-12 inventory is going to be off, as well as ending inventory, retained earnings, etc etc

Is there an easy way to handle this? Very much appreciated!

Jeff-Ohio (talk|edits) said:

30 April 2013
Ps - my real question is what the heck do I do with last year's #s if this is a change in accounting method and not a correction of an error

Kevinh5 (talk|edits) said:

30 April 2013
I know this is an accounting question and I'm certainly no accounting expert. But my question is tax related: if you are NOT going to amend a tax return, I'm assuming you made the correction on the return for which the 3115 applied? Wouldn't this solve the tax part of your question at least?

Jeff-Ohio (talk|edits) said:

30 April 2013
Right - correction took place in 2012 and we will file the 2012 tax return with the interest expensed and the correction in 2012. So, yes this would solve that issue (btw - I'm no accounting expert either)

Kevinh5 (talk|edits) said:

30 April 2013
So then whatever you do to the financials, you won't have to make another change to the tax return.

Podolin (talk|edits) said:

30 April 2013
Boat dealer, right, not boat manufacturer? So interest is to be expensed, right? So why In 2012, we filed a 3115 (not automatic), paid the fee, and requested a change in accounting method to begin capitalizing interest. Has IRS responded?

Jeff-Ohio (talk|edits) said:

30 April 2013
Boat Dealer - received IRS consent

Jeff-Ohio (talk|edits) said:

30 April 2013
Len - was there another part of your question? Why did we file a 3115? Because we changed the accounting method.

How about this is be termed as a “cumulative effect of change in accounting method.”

Let’s say ending inventory was $200k @ 12/31/11. On 1/1/12, we decided to expense out certain costs that we previously capitalized to Inventory. Let’s pretend that, had we been doing this all along, 12/31/11 ending inventory would have been $185k.

To correct for book purposes, we debit RE on 1/1/12 for $15k and credit opening (1/1/12) Inventory for the same amount. CK

Podolin (talk|edits) said:

30 April 2013
Was the 3115 requesting permission to start expensing interest?

Jeff-Ohio (talk|edits) said:

1 May 2013
Yes it was

Jeff-Ohio (talk|edits) said:

1 May 2013
I'm thinking it could go both ways. We WERE correcting an error and we were ALSO changing our method of accounting. We treated it as a change in a method of accounting and IRS did send a consent letter

Podolin (talk|edits) said:

1 May 2013
Yes it was Well, that was not what you said in the OP. That might explain my confusion and yours. From OP: and requested a change in accounting method to begin capitalizing interest

Jeff-Ohio (talk|edits) said:

1 May 2013
Lenny, what I said in the first OP is EXACTLY what we did. We requested a change in accounting method to start expensing interest that we were previously capitalizing. That's the accounting change, from capitalization to expensing. IRS consented to our request to change accounting methods. We even drafted a footnote in the Reviewed finacials for the change in accoutning methods/principles.


NOW, in my mind, yes - we did change accounting methods, but it probably also could be looked as a correction of an error since GAAPY says you should expense interest related to floor plans.

However, our 'method' worng, wrong or indifferent, was pro-IRS - so I'm sure they weren't too upset about it.

Podolin (talk|edits) said:

2 May 2013
I rest my case. I'm glad it worked out.

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