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.