Example of Tax Accounting for a Consigned Inventory Transaction

This example illustrates tax accounting performed by Oracle Receipt Accounting and Oracle Cost Accounting for a consigned inventory transaction in the supply chain. This transaction uses a tax point basis of delivery, that is, taxes are accounted at receipt of the goods.

Scenario

The supplier makes a consigned shipment to the inventory organization based on a consigned purchase order (PO) for USD 1,000 with the following tax details:

• Tax A delivery basis = 10%. Recoverable and nonrecoverable portions are both 50%

• Tax B invoice basis = 20%. Recoverable and nonrecoverable portions are both 50%

Tax Details at Receipt and Invoice

Tax details at the consigned receipt of goods are:

• Item value = USD 1,000

• Tax A delivery basis = 15%, which is changed from 10% estimated at the time of PO. Recoverable and nonrecoverable portions are both 50%, or USD 75, that is, USD 1,000 * 15% * 50%.

• Tax B invoice basis = 25%, which is changed from 20% estimated at the time of PO. Recoverable and nonrecoverable portions are both 50%, or USD 125, that is, USD 1,000 * 25% * 50%.

Tax details at the time of invoice are:

• Item value = USD 1,000

• Tax A delivery basis = 20%. Recoverable and nonrecoverable portions are both both 50%, however taxes are not recalculated because this transaction uses a tax point basis of delivery.

• Tax B invoice basis = 30%, which is changed from 25% estimated at the time of receipt. Recoverable and nonrecoverable portions are both 50%, or USD 150.

Analysis

Receipt Accounting and Cost Accounting create accounting distributions when the consigned good are received, when the status changes from consigned to owned, and when the invoice is accounted.

Tax Accounting Entries

Receipt Accounting and Cost Accounting generate the following accounting entries at the time of receipt of consigned goods:

Subledger	Event Type	Accounting Line Type	Amount in Functional Currency +Dr/-Cr	Functional Currency	Cost Element	Basis of Amount
Receipt Accounting	Consigned PO Receipt	Consigned Clearing	1,000	USD	Material	PO Price
Receipt Accounting	Consigned PO Receipt	Consigned Clearing	75	USD	Tax	Tax A Delivery-Based Nonrecoverable: USD 1,000 * 15% * 50%
Receipt Accounting	Consigned PO Receipt	Consigned Clearing	125	USD	Tax	Tax B Invoice-Based Nonrecoverable: USD 1,000 * 25% * 50%
Receipt Accounting	Consigned PO Receipt	Consigned Accrual	-1,200	USD	Not applicable	Not applicable
Cost Accounting	Consigned PO Delivery	Consigned Inventory*	1,200	USD	Not applicable	Not applicable
Receipt Accounting	Consigned PO Delivery	Consigned Clearing	-1,200	USD	Not applicable	Not applicable

*PO price plus nonrecoverable taxes A and B.

Receipt Accounting and Cost Accounting generate the following accounting entries at the time of change of status from consigned to owned stock:

Subledger	Event Type	Accounting Line Type	Amount in Functional Currency +Dr/-Cr	Functional Currency	Cost Element	Basis of Amount
Receipt Accounting	Consigned Receipt Consumption	Consigned Accrual	1,000	USD	Material	PO Price
Receipt Accounting	Consigned Receipt Consumption	Consigned Accrual	75	USD	Not applicable	Tax A Delivery-Based Nonrecoverable: USD 1,000 * 15% * 50%
Receipt Accounting	Consigned Receipt Consumption	Consigned Accrual	125	USD	Not applicable	Tax B Invoice-Based Nonrecoverable: USD 1,000 * 15% * 50%
Receipt Accounting	Consigned Receipt Consumption	Consigned Clearing	-1,200	USD	Not applicable	Not applicable
Cost Accounting	Transfer to Owned Issue	Consigned Inventory Offset	1,000	USD	Material	PO Price
Cost Accounting	Transfer to Owned Issue	Consigned Inventory Offset	75	USD	Nonrecoverable Tax	Tax A Delivery-Based Nonrecoverable
Cost Accounting	Transfer to Owned Issue	Consigned Inventory Offset	125	USD	Nonrecoverable Tax	Tax B Invoice-Based Nonrecoverable
Cost Accounting	Transfer to Owned Issue	Consigned Inventory	-1,200	USD	Not applicable	PO Price
Receipt Accounting	Trade Receipt Accrual	Trade Clearing	1,000	USD	Not applicable	PO Price
Receipt Accounting	Trade Receipt Accrual	Trade Clearing	75	USD	Not applicable	Tax A Delivery-Based Nonrecoverable
Receipt Accounting	Trade Receipt Accrual	Trade Clearing	125	USD	Not applicable	Tax B Invoice-Based Nonrecoverable
Receipt Accounting	Trade Receipt Accrual	Tax Recoverable*	75	USD	Not applicable	Tax A Delivery-Based Recoverable
Receipt Accounting	Trade Receipt Accrual	Supplier Accrual	-1,275	USD	Not applicable	Not applicable
Cost Accounting	Trade In-Transit Receipt	Trade In-Transit	1,000	USD	Not applicable	PO Price
Cost Accounting	Trade In-Transit Receipt	Trade In-Transit	75	USD	Not applicable	Tax A Delivery-Based Nonrecoverable
Cost Accounting	Trade In-Transit Receipt	Trade In-Transit	125	USD	Not applicable	Tax B Invoice-Based Nonrecoverable
Cost Accounting	Trade In-Transit Receipt	Trade Clearing	-1,200	USD	Not applicable	Not applicable
Cost Accounting	Transfer to Owned (Receipt)	Inventory Valuation	1,000	USD	Material	PO Price
Cost Accounting	Transfer to Owned (Receipt)	Inventory Valuation	75	USD	Nonrecoverable Tax	Tax A Delivery-Based Nonrecoverable
Cost Accounting	Transfer to Owned (Receipt)	Inventory Valuation	125	USD	Nonrecoverable Tax	Tax B Invoice-Based Nonrecoverable
Cost Accounting	Transfer to Owned (Receipt)	Trade In-Transit	-1,200	USD	Not applicable	Not applicable

*Delivery-based recoverable tax A is calculated on consigned receipt but will be accounted after ownership change event.

Accounts Payable generates the following accounting entries when the invoice is created:

Subledger	Event Type	Accounting Line Type	Amount in Functional Currency +Dr/-Cr	Functional Currency	Basis of Amount
Accounts Payable	Invoice	Supplier Accrual	1,275	USD	Not applicable
Accounts Payable	Invoice	Tax B Recovery	150	USD	Tax B Invoice-Based Recoverable
Accounts Payable	Invoice	Tax B Rate Variance*	25	USD	Not applicable
Accounts payable	Invoice	Supplier Liability	-1,450	USD	Not applicable

*Tax variance due to the difference between tax rates at time of delivery versus invoice.

Receipt Accounting and Cost Accounting generate the following accounting entries when invoice is accounted:

Subledger	Event Type	Accounting Line Type	Amount in Functional Currency +Dr/-Cr	Functional Currency
Receipt Accounting	Invoice Price Adjustment	Trade Clearing	25	USD
Receipt Accounting	Invoice Price Adjustment	Tax B Rate Variance*	-25	USD
Cost Accounting	Acquisition Cost Adjustment	Inventory Valuation**	25	USD
Cost Accounting	Acquisition Cost Adjustment	Trade Clearing	-25	USD

*Tax variance due to the difference between tax rates at time of delivery versus invoice.

**Inventory acquisition cost adjustment for nonrecoverable tax B.