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is 40 years. For financial reporting purposes, petitioners
accrue the estimated cost of the procedures in issue as the
towboats accrue hours of usage, and such estimated costs are
reflected as expenses for the periods to which they relate, which
are the periods prior to the performance of the maintenance.
To illustrate petitioners’ financial accounting treatment of
the maintenance costs, if during a particular year a
representative towboat incurred 8,000 hours of use and the
maintenance procedures were expected to be performed after 25,000
hours of use and were expected to cost $100,000, petitioners
would reflect an expense of $32,000 (8,000/25,000 x $100,000) in
their consolidated income statement for that year. An additional
$32,000 of expense would be reflected in petitioners’ income
statement for each of the 2 succeeding years (during which an
additional 14,000 hours of usage would have accrued), and $4,000
(1,000/25,000 x $100,000) would be reflected in petitioners’
income statement for the third succeeding year (during which
1,000 hours of usage would have accrued prior to the performance
of the maintenance).
Petitioners use this financial accounting method in an
attempt to match the costs incurred for the maintenance
procedures in issue with the related revenues. This accounting
method, which expenses the costs incurred for the maintenance
procedures prior to the performance of the maintenance, is in
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