Example of Tax Accounting for a Purchase Order Retroactive Price Change
This example illustrates tax accounting performed by Oracle Receipt Accounting and Oracle Cost Accounting for a retroactive price change on a purchase order (PO) receipt that is partially invoiced.
Scenario
The supplier makes a shipment to the inventory organization based on a purchase order for 10 units, at a per unit price of USD 100. After receipt of the goods, a partial invoice is created for 2 units at USD 100 per unit.
The purchase order price changes retroactively from USD 100 to USD 120. The remaining balance of 8 units is invoiced at USD 120 per unit.
Tax Details
This transaction uses a tax point basis of delivery, that is, taxes are accounted at the time of receipt of goods.
Taxes details are the same after the retroactive price change on the PO:
-
Tax A delivery basis = 20%. Recoverable and nonrecoverable portions are both 50%.
-
Tax B invoice basis = 30%. Recoverable and nonrecoverable portions are both 50%.
Analysis
Receipt Accounting and Cost Accounting create accounting distributions at the time of receipt of goods, after the retroactive purchase order price change, and for the differential invoice.
Tax Accounting Entries
Receipt Accounting and Cost Accounting generate the following accounting entries at the time of receipt of goods:
Subledger |
Event Type |
Accounting Line Type |
Amount in Functional Currency +Dr/-Cr |
Functional Currency |
Cost Element |
Basis of Amount |
---|---|---|---|---|---|---|
Receipt Accounting |
PO Receipt |
Receiving Inspection |
1,000 |
USD |
Material |
PO Price |
Receipt Accounting |
PO Receipt |
Receiving Inspection |
100 |
USD |
Tax |
Tax A Delivery-Based Nonrecoverable: USD 1,000 * 20% * 50% |
Receipt Accounting |
PO Receipt |
Tax Recoverable (Tax A) |
100 |
USD |
Tax |
Tax A Delivery-Based Recoverable: USD 1,000 * 20% * 50% |
Receipt Accounting |
PO Receipt |
Receiving Inspection |
150 |
USD |
Tax |
Tax B Invoice-Based Nonrecoverable: USD 1,000 * 30% * 50% |
Receipt Accounting |
PO Receipt |
Supplier Accrual |
-1,350 |
USD |
Material |
Not applicable |
Cost Accounting |
PO Delivery |
Inventory Valuation |
1,250* |
USD |
Not applicable |
Not applicable |
Cost Accounting |
PO Delivery |
Receiving Inspection |
-1,250* |
USD |
Not applicable |
Not applicable |
*PO price plus nonrecoverable taxes A and B.
Accounts Payable generates the following accounting entries for the supplier when partial invoice is accounted:
Subledger |
Event Type |
Accounting Line Type |
Amount in Functional Currency +Dr/-Cr |
Functional Currency |
Cost Element |
Basis of Amount |
---|---|---|---|---|---|---|
Accounts Payable |
Invoice |
Supplier Accrual |
270* |
USD |
Not applicable |
Item Price plus Nonrecoverable Taxes A and B for 2 units = USD 1,350/10 * 2 |
Accounts Payable |
Invoice |
Tax Recoverable |
30 |
USD |
Tax |
Tax B Invoice-Based Recoverable: USD 200 * 30% * 50% |
Accounts Payable |
Invoice |
Supplier Liability |
-300 |
USD |
Not applicable |
Not applicable |
*Accrual is debited to the extent quantity is invoiced, which is 2 units.
Receipt Accounting and Cost Accounting generate the following accounting entries after the retroactive purchase order price change:
Subledger |
Event Type |
Accounting Line Type |
Amount in Functional Currency +Dr/-Cr |
Functional Currency |
Cost Element |
Basis of Amount |
---|---|---|---|---|---|---|
Receipt Accounting |
Retroactive Price Adjustment |
Receiving Inspection |
160* |
USD |
Material |
USD 120 - USD 100 * uninvoiced quantity of 8 units |
Receipt Accounting |
Retroactive Price Adjustment |
Receiving Inspection |
16 |
USD |
Tax |
Tax A Delivery-Based Nonrecoverable: USD 160 * 20% * 50% |
Receipt Accounting |
Retroactive Price Adjustment |
Tax Recoverable (Tax A) |
16 |
USD |
Tax |
Tax A Delivery-Based Recoverable: USD 160 * 20% * 50% |
Receipt Accounting |
Retroactive Price Adjustment |
Receiving Inspection |
24 |
USD |
Tax |
Tax B Invoice-Based Nonrecoverable: USD 160 * 20% * 50% |
Receipt Accounting |
Retroactive Price Adjustment |
Supplier Accrual |
-216 |
USD |
Material |
Not applicable |
Cost Accounting |
Acquisition Cost Adjustment |
Inventory Valuation |
200** |
USD |
Not applicable |
Not applicable |
Cost Accounting |
Acquisition Cost Adjustment |
Receiving Inspection |
-200 |
USD |
Not applicable |
Not applicable |
*Retroactive price adjustment accounted only for the uninvoiced quantity, that is, 10 units received minus 2 units invoiced = 8 units uninvoiced.
** Retroactive PO price change plus nonrecoverable taxes A and B.
Accounts Payable generates the following accounting entries for the balance of 8 units:
Subledger |
Event Type |
Accounting Line Type |
Amount in Functional Currency +Dr/-Cr |
Functional Currency |
Basis of Amount |
---|---|---|---|---|---|
Accounts Payable |
Invoice |
Supplier Accrual |
960 |
USD |
Item Price USD 120 * 8 |
Accounts Payable |
Invoice |
Supplier Accrual |
96 |
USD |
Tax A Delivery-Based Nonrecoverable: USD 120 * 8 * 20% * 50% |
Accounts Payable |
Invoice |
Supplier Accrual |
96 |
USD |
Tax A Delivery-Based Recoverable: USD 120 * 8 * 20% * 50% |
Accounts Payable |
Invoice |
Supplier Accrual |
144 |
USD |
Tax B Invoice-Based Nonrecoverable: USD 120 * 8 * 30% * 50% |
Accounts Payable |
Invoice |
Recoverable Tax B |
144 |
USD |
Tax B Invoice-Based Recoverable: USD 120 * 8 * 30% * 50% |
Accounts Payable |
Invoice |
Supplier Liability |
-1,440 |
USD |
Not applicable |
Accounts Payable generates the following accounting entries for the original invoice quantity of 2 units at the revised PO price:
Subledger |
Event Type |
Accounting Line Type |
Amount in Functional Currency +Dr/-Cr |
Functional Currency |
Basis of Amount |
---|---|---|---|---|---|
Accounts Payable |
Invoice |
Invoice Price Variance |
40 |
USD |
Difference in PO Item Price USD 20 * 2 |
Accounts Payable |
Invoice |
Tax Invoice Price Variance Tax A |
4 |
USD |
Tax A Delivery-Based Nonrecoverable |
Accounts Payable |
Invoice |
Tax Invoice Price Variance Tax B |
6 |
USD |
Tax B Invoice-Based Nonrecoverable |
Accounts Payable |
Invoice |
Recoverable Tax A |
4 |
USD |
Tax A Delivery-Based Recoverable |
Accounts Payable |
Invoice |
Recoverable Tax B |
6 |
USD |
Tax B Invoice-Based Recoverable |
Accounts Payable |
Invoice |
Supplier Liability |
-60 |
USD |
Not applicable |
Cost Accounting and Receipt Accounting generate the following accounting entries for the differential invoice:
Subledger |
Event Type |
Accounting Line Type |
Amount in Functional Currency +Dr/-Cr |
Functional Currency |
---|---|---|---|---|
Receipt Accounting |
Invoice Price Adjustment |
Receiving Inspection |
50 |
USD |
Receipt Accounting |
Invoice Price Adjustment |
Invoice Price Adjustment |
-40 |
USD |
Receipt Accounting |
Invoice Price Adjustment |
Tax Invoice Price Adjustment |
-10* |
USD |
Cost Accounting |
Acquisition Cost Adjustment |
Inventory Valuation |
50** |
USD |
Cost Accounting |
Acquisition Cost Adjustment |
Receiving Inspection |
-50 |
USD |
*Nonrecoverable taxes A and B on the differential invoice price.
**Difference between invoice price and nonrecoverable taxes A and B.