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C. GM's Accounting for the Fleet Rate Support Payments21
GM accounted for its fleet rate support payment liability as
follows: When GM's liability first arose, GM recorded a sales
allowance in the amount of the fleet rate support payment and an
accrued liability to GMAC in the amount of the fleet rate support
payment. When GMAC actually lent the funds to the fleet customer
and GM made the fleet rate support payment to GMAC, GM eliminated
the accrued liability and recorded a cash reduction in the amount
of the fleet rate support payment. The net effect on GM's income
statement was a sales allowance in the amount of the fleet rate
support payment, and the net effect on GM's balance sheet was a
reduction in GM's cash balance in the amount of the fleet rate
support payment.
VII. Tax Return Treatment of Item Related to Retail and
Fleet Rate Support Programs
In the relevant taxable years, in computing its separate
taxable income, GM treated the retail rate support payments it
made to GMAC and the fleet rate support payments made to GMAC and
to other unrelated lenders as current deductions by the parent GM
(rate support deductions). For purposes of computing its
separate taxable income, GMAC treated the discount earned on
rate-supported RISC's and rate supported fleet loans (which were
mathematically equal to the retail/fleet rate support payment
21 For an example, see infra pp. 37-38.
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