Writing Tax Research Memos Tax professionals often must document and communicate their tax research. Clear written communication is important since tax planning ideas or IRS audits can cause prior tax returns to be amended or adjusted long after originally filed. The tax professional may have long since forgotten the reasons for his or her research conclusions, so it is essential that the relevant tax authorities and rationales be thoroughly documented and clearly explained. In some cases, the tax professionals who prepared the research memo may no longer be with the firm, increasing the importance of written communication that others can follow easily.
Accounting Partners and Management From: There is not a reliable fair value measure for the equipment, the exchange price is indeterminable, and there is question as to how to account for the interest expense over the life of the note, let alone what the rate of interest should even be.
Imputed Interest Rate If there were to be a known interest rate for note, you could find the present value of the equipment by discounting it at that specific rate. As FASB states below, since there is not a specified interest rate, the rate must be approximated by what is called imputation, where different factors like rates for other debt instruments similar to the one currently being used and existing prime interest rates all affect the chosen rate in the end.
The interest rate chosen is very important, as this would affect the accounting for long-term liabilities and your assets.
This must be taken into consideration when determining a rate, as we would want to stay conservative and not over estimate our assets.
The resulting imputed interest rate is then used in the next step. To estimate the present value of a note under such circumstances, an applicable interest rate is approximated that may differ from the stated or coupon rate. This process of approximation is called imputation, and the resulting rate is called an imputed interest rate.
Nonrecognition of an apparently small difference between the stated rate of interest and the applicable current rate may have a material effect on the financial statements if the face amount of the note is large and its term is relatively long.
See below as to how to determine one. However, this paragraph provides the following general guidelines: In any event, the rate used for valuation purposes shall be the rate at which the debtor can obtain financing of a similar nature from other sources at the date of the transaction.
The calculations would be as follows: The journal entries would be as follows: To calculated the second year, third year, and so on, you would need to include the previous interest and add it to the discount value, which would be multiplied by the imputed interest rate.
You would continue to do this until the note is retired and the carrying value of the discount on notes payable would be zero.
So, as FASB states below, the imputed interest rate is key in this situation in order to account for the equipment Birdies Galore is acquiring. This determination shall be made at the time the note is issued, assumed, or acquired; any subsequent changes in prevailing interest rates shall be ignored.
My FASB references are found at http:sample business memorandum (The business memo format is best suited for presenting analysis and results of an issue that requires no more than pages of text and a couple of tables and exhibits.
Accounting memos says a lot about your business.
Memos are vital communication tools any business company should use from time to time. You should put into consideration the reputation of your company when writing your memo.
Writing a tax research memo is an art. Tax professionals do not universally use the same techniques. Generally, the more time taken to prepare a research memo, the less time necessary to review it.
Well for what it is worth -- here is the format I always used for technical accounting memos: MEMO.
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TO: FROM: RE: DATE: BACKGROUND. Put background information here. Lay out the facts and circumstances. RELEVANT ACCOUNTING STANDARDS: Summarize and reference the FASB ASC accounting standards relevant to the facts and circumstances.
information with a logical path: If the research shows X, what are the implications of that finding for the population you serve, or for your agency or organization? And given those. Accounting memos says a lot about your business. Memos are vital communication tools any business company should use from time to time.
You should put into consideration the reputation of your company when writing your memo. This is because poorly and disorganized written memo will not pass the accurate and intended message to the .