LIFO Resources for CPA Firms

Transcription

1 LIFO Resources for CPA Firms LIFO-PRO, INC. LIFO Calculation Services LIFO Calculation & Reporting Software 920 South 107th Avenue, Suite 301 Omaha, NE (402) (877) fax Website:

2 TABLE OF CONTENTS Click on the titles to view the reports listed below (mouse cursor will change to a white hand): Pro Forma LIFO Inflation & Expense Calculation Report 1 IPIC LIFO Historical Inflation Report 2 LIFO Inflation & Expense Comparison Report 3 LIFO Historical Inflation Comparison Report 4 LIFO Inflation, Expense & Reserve Comparison Report 5 IPIC LIFO BLS Appropriate Month Comparison Report 6 IPIC LIFO BLS Category Method Comparison Report 7

3 Pro Forma LIFO Inflation & Expense Calculation Report Pro Forma LIFO Calculation IPIC PPI Table 9 12/31/97 12/31/16 Inflation Period Percentage 12/31/ % 12/31/ % 12/31/ % 12/31/ % 12/31/ % 12/31/ % 12/31/ % 12/31/ % 12/31/ % 12/31/ % 12/31/ % 12/31/ % 12/31/ % 12/31/ % 12/31/ % 12/31/ % 12/31/ % 12/31/ % 12/31/ % 12/31/ % 3 Year Average 2.4% 5 Year Average 0.5% 10 Year Average 2.5% 20 Year Average 2.8% 12/31/2015 YE Inventory Balance 15,213,250 Projected LIFO Expense 12/16 12/31/2016 YE Inventory Balance $ $ 18,891,753 $ 844,974 The Pro Forma LIFO Inflation & Expense Calculation Report is designed for current or prospective CPA Firm clientele that are considering making a LIFO election. LIFO-PRO assigns the appropriate BLS categories to companies inventory items to calculate twenty years of historical inflation averages. Also seen above is the projected LIFO expense that would result from the 5.6% 12/31/2016 year end inflation index and 2015/2016 year end inventory balances. The example shown above would be a situation where LIFO-PRO would strongly recommend a 2016 LIFO election for the CPA firm's client. LIFO-PRO would include the following factors in justifying such a recommendation: 1) There is inflation in 15 of the 20 years for the BLS PPI index categories used for this company's inventory mix 2) The current year and 3/5/10/20 year inflation averages are all inflationary 3) There is a material 12/31/2016 Tax LIFO deferral benefit that merits making a LIFO election in the current period LIFO Resources for CPA Firms Page 1 of 7

4 IPIC LIFO Historical Inflation Report Historical Inflation for 5 Most Predominant BLS PPI Categories Applicable to Inventory Mix PPI Table 9 Commodity Codes & Descriptions Inflation Averages Through 12/2016 PPI Code PPI Category Description 1 Year 3 Year 5 Year 10 Year 20 Year 1143 Fluid power equipment 1.5% 1.2% 1.5% 2.7% 2.6% Parts for fluid power pumps, motors, and hydrostatic transmissions 3.3% 0.2% 1.2% N/A N/A Fluid power valves 3.5% 2.4% 2.3% 3.2% 3.0% Fluid power hose and tube fittings 1.0% 0.9% 1.2% 2.8% 2.9% Parts for fluid power valves 2.1% (0.6%) 0.7% 1.4% 2.6% Cells with N/A indicate PPI Table 9 historical inflation average was unavailable due to either: 1) Index for that category was unpublished for the selected time period 2) Category did not exist during selected time period December BLS PPI Table 9 Appropriate Month used for inflation percentages (December divided by December PPI Table 9 indexes to calculate averages shown above) The IPIC LIFO Historical Inflation Report shows inflation percentages for the IPIC BLS PPI Table 9 categories applicable to the CPA firms client's inventory mix. This report is useful for CPA firms because it serves as an accurate gauge of the potential LIFO tax deferral benefit that their client could capture from making a LIFO election. Shown above are five most predominantly-used BLS PPI categories and their respective inflation percentages for the current year end and along with 3/5/10/20 year averages. LIFO-PRO identifies the most predominant inventory items present in a company's product mix and selects the appropriate BLS PPI Table 9 categories to provide CPA firms the historical inflation averages for their client. The example shown above would be a situation where LIFO-PRO would strongly recommend a 2016 LIFO election for the CPA firm's client. LIFO-PRO would include the following factors in justifying such a recommendation: 1) There is inflation in all five of the BLS PPI Table 9 categories shown above for the current year end 2) There is likely to be at least 1-2% average inflation if a LIFO election were to be made by the CPA firm's client this year since the five BLS PPI categories likely represent a large majority of the company's inventory mix 3) 22 out of the 25 inflation averages are inflationary for the BLS PPI category periods shown above LIFO Resources for CPA Firms Page 2 of 7

5 LIFO Inflation & Expense Comparison Report Pro Forma LIFO Inflation Calculation Comparison IPIC PPI vs. Internal Index 12/31/02 12/31/2016 Inflation Percentages IPIC PPI Table 9 Inflation Sample Corporation Actual Internal Index Inflation Difference: IPIC PPI vs. Sample Corp. Actual Internal Index Inflation Period 12/31/ % 2.07% 3.93% 12/31/ % 1.56% 6.22% 12/31/ % 1.50% 0.03% 12/31/ % 1.05% 3.21% 12/31/ % 0.94% 2.80% 12/31/ % 1.71% 1.97% 12/31/ % 1.09% 2.45% 12/31/ % 2.34% 6.10% 12/31/ % 1.82% 3.03% 12/31/ % 1.65% 6.71% 12/31/ % 1.12% 1.71% 12/31/ % 4.29% 2.65% 12/31/ % 2.57% 4.93% 12/31/ % 1.01% 0.63% 12/31/ % 0.21% 2.57% 12/31/ % 3.12% 0.37% 12/31/ % 2.95% 4.59% 12/31/ % 0.58% 0.15% 12/31/ % 3.15% 3.74% 12/31/ % 3.78% 5.12% 3 Year Average 0.89% 2.12% 3.01% 5 Year Average 1.41% 1.24% 2.65% 10 Year Average 1.57% 0.48% 2.04% 20 Year Average 2.15% 0.69% 2.84% LIFO Expense Comparison for the Period Ending 12/31/2016 Current 12/31/2016 LIFO Inflation Index Difference: Year Expense Type LIFO Expense Inflation (Income) Sample Corp. 3.78% ($1,129,014) ($2,171,139) IPIC PPI Table % $1,042,125 $2,171,139 The LIFO Inflation & Expense Comparison Report serves as a pro forma comparison of the additional Tax LIFO deferral benefit that could be achieved from a CPA firm's client switching LIFO inflation measurement sources. LIFO-PRO often finds that changing a company's LIFO inflation measurement source from an internally-calculated index to the IPIC Method (using BLS Consumer Price Index or Producer Price Index; known as "CPI" or "PPI") produces materially higher Tax LIFO deferral benefits. Since The IPIC Method is an IRS safe harbor method, companies also receive IRS audit protection for any LIFO calculation error(s) made in periods prior to their IPIC LIFO Method election (switching to the IPIC Method is an automatic change made via filing a form 3115 Application for Change in Accounting Method). LIFO Resources for CPA Firms Page 3 of 7

6 LIFO Historical Inflation Comparison Report Historical Inflation Comparison: IPIC PPI vs. Actual Internal Index Using BLS PPI Table Category Indexes Applicable to 's Product Category Lines IPIC PPI Table 9 Inflation Averages For Sample Corp. IPIC PPI Vs. PPI Table 9 Commodity Codes & Descriptions Inventory Product Category The Year Ended December YE Inventory Sample Corp YE Actual Sample Corp YE Actual PPI Code PPI Category Description 1 Year 3 Year 5 Year 10 Year 20 Year Balances Inflation Inflation 1513 Small arms and ammunition Hunting 0.35% 1.56% 1.64% 3.07% 2.69% 46,208, % 0.6% 1041 Hardware, n.e.c. Hardware 0.94% 1.23% 0.82% 1.93% 2.00% 24,233, % 1.0% 1042 Power driven handtools, including parts & attachments Power Tools 0.43% 1.86% 2.02% 1.53% 1.07% 12,199, % 3.2% 1266 Lawn/garden equipment Outdoor Power Equipment 0.28% 0.47% 0.35% 0.54% 0.42% 11,127, % 0.9% 1244 Electric housewares and fans Housewares 1.87% 3.66% 0.91% 0.02% 0.35% 21,266, % 9.0% Using 's $115,034,445 12/31/2016 Year End Inventory Balance & Product Mix $ 115,035, % 2.53% The LIFO Historical Inflation Comparison Report uses BLS PPI Table 9 category inflation percentages that would be assigned to a company's product categories to compare their inflation percentages against the internally-calculated inflation percentages. The example shown above would be a situation where LIFO-PRO would strongly recommend the CPA firm's client making a change in accounting method to switch their inflation measurement source from internally-calculated indexes to the IPIC Method (PPI).LIFO-PRO would include the following factors in justifying such a recommendation: 1) The IPIC BLS PPI current year inflation is more than 2.5% higher than 's internally-calculated inflation 2) 23 of the 25 inflation averages are inflationary for the BLS PPI category periods shown above 3) The BLS PPI inflation is projected to yield a material Tax LIFO deferral benefit (LIFO Expense; LIFO reserve increase) whereas Sample Corporation's actual internally-calculated inflation index is projected to yield a Tax LIFO liability (LIFO income; LIFO reserve decreases) LIFO Resources for CPA Firms Page 4 of 7

7 LIFO Inflation, Expense & Reserve Comparison Report LIFO Method Inflation, Expense & Reserve Comparison: IPIC PPI vs. Actual Internal Index Three Year Comparison: Periods Ended12/31/ /31/2016 Using $28,743,654 12/31/2016 Year End Inventory Balance & Product Mix LIFO Inflation Percentage LIFO Expense (Income) LIFO Reserve Period Actual IPIC PPI Difference Actual IPIC PPI Difference Actual PPI Difference 12/31/ % 0.82% 0.2% $ 193,542 $ 249,772 $ 56,230 $ 4,620,201 $ 4,676,431 $ 56,230 12/31/ % 0.70% 3.8% (977,712) 113,165 1,090,876 3,642,489 4,789,595 1,147,106 12/31/ % 1.34% 5.1% (1,129,014) 435,694 1,564,708 $ 2,513,476 $ 5,225,290 $ 2,711,814 Totals 2.12% 0.95% 3.1% $ (1,913,184) $ 798,630 $ 2,711,814 The LIFO Inflation, Expense & Reserve Comparison Report is for CPA firm clientele that are currently on LIFO, but are considering making a switch from an internally-calculated LIFO inflation measurement source to the IPIC method (externally calculated inflation measurement; i.e. BLS CPI/PPI). It compares the LIFO inflation, Expense and Reserve for the current & two prior periods between 's actual internally-calculated LIFO inflation and the pro forma IPIC BLS PPI inflation measurement sources. This report provides the adequate data required for CPA firms and their clientele to calculate the retrospective effects of a LIFO accounting method change. In the example shown above, LIFO-PRO would strongly recommend that the CPA firm's client switch their LIFO inflation measurement source from the internally-calculated inflation measurement source to the IPIC method. LIFO-PRO would include the following factors in justifying such a recommendation: 1) The average IPIC PPI inflation is more than 3% higher than the internally-calculated inflation over a three-year period 2) The $2,711,814 of additional Tax LIFO deferral represents a materially different 12/31/2016 LIFO Reserve balance when comparing the IPIC PPI LIFO inflation to the actual internally-calculated LIFO inflation measurement source 3) could achieve $1,564,708 in additional Tax LIFO deferral (LIFO reserve increase) for the 12/31/2016 year end if they were to elect the IPIC method in 2016 when compared to the internally-calculated inflation index that they currently use, and would avoid recognizing $1,129,014 of LIFO income (LIFO reserve increase) LIFO Resources for CPA Firms Page 5 of 7

8 IPIC LIFO BLS Appropriate Month Comparison Report Appropriate Month Inflation & LIFO Expense Comparison IPIC PPI Table 9 Detailed Reports For the Year Ended 12/31/2016 Inflation Appropriate Month Period Percentage LIFO Expense October '15 October ' % $ 718,917 November '15 November ' % $ 776,241 December '15 December ' % $ 844,974 The IPIC LIFO BLS Appropriate Month Inflation & LIFO Expense Comparison Report compares the inflation & LIFO Expense amounts that would result from each of the appropriate month periods allowed by IRS Regs. This comparison report is used for CPA firm clientele that are making an IPIC LIFO Method election for the first time, or for clients that already use the LIFO method and are switching to the IPIC method. LIFO Resources for CPA Firms Page 6 of 7

9 IPIC LIFO BLS Category Method Comparison Report BLS Category Assignment Method Inflation & LIFO Expense Comparison For the Year Ended 12/31/2016 Inflation Percentages Most Appropriate Month Period Detailed Ten Percent Category Method Most Detailed Category LIFO Expense Ten Percent Method October 2015 October % 0.20% $ 31,638 $ 12,741 November 2015 November % 2.03% $ 8,752 $ 128,464 December 2015 December % 2.88% $ 2,394 $ 182,292 Using year end inventory balances of $6,332,648 & $6,853,143 The IPIC LIFO BLS Category Assignment Method Inflation & LIFO Expense Comparison Report compares the inflation & LIFO Expense amounts that would result from assignment of most-detailed BLS categories (known as the most-detailed category method) or less-detailed BLS categories (known as the 10 percent method) along with each of the appropriate month periods allowed by IRS Regs. This comparison report is used for CPA firm clientele that are making an IPIC LIFO Method election for the first time, or for clients that already use the LIFO method and are switching to the IPIC method. LIFO Resources for CPA Firms Page 7 of 7