Schedule A - Cost Of Pellets Produced - 2012 Page 2
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1
22012 Schedule A Instructions
Complete Schedule A to determine the
Line 4
Line 7
cost of your production. You are allowed
Additional IRC Section 263A Costs
Inventory at End of Year
to include only those expenses necessary
Under the uniform capitalization rules,
Enter the value of your closing inventory,
to convert raw iron ore or taconite concen-
(IRC section 263A), you must capitalize or
including the allowable parts of the cost of
trates to marketable quality (M.S. 298.01,
include in inventory certain costs incurred
raw materials and supplies, direct labor and
subd. 4[b]).
in production. If you are subject to section
overhead expenses.
263A, you are required to capitalize not only
These expenses include costs associated
Lines 9a – 9e
direct costs but also an allocated portion of
with beneficiation and refinement, but not
Inventory Valuation Methods
most indirect costs related to the current
costs incurred after marketable iron ore or
Inventories can be valued at:
year’s production.
taconite pellets are produced. Examples of
• cost;
unallowable costs include transportation,
Costs of mixed-service departments, or
stockpile loading and unloading, market-
functions to production activity, are allocat-
• cost or market value, whichever is lower;
ing, and marine insurance. Transportation
ed through the use of a reasonable method
or
from the point of extraction to the plant is
that approximates the benefits provided by
• any method approved by federal regula-
allowed.
that activity.
tions and requirements.
Generally, follow federal guidelines to
Some indirect costs included in inventory
Line 9a. On line 9a, check the method(s)
complete this section, but keep in mind the
are administrative expenses, depreciation,
used for valuation of inventories. Under
limits of allowable expenses as shown in the
taxes, insurance, rework labor, contribu-
“Lower of cost or market value, ” the term
preceding paragraph. Allowable expenses
tions to pensions, certain profit-sharing, an-
“market” means the current bid price pre-
for occupation tax are more restrictive than
nuity or deferred compensation plans. Refer
vailing on the inventory valuation date for
for federal returns. This calculation is simi-
to federal rules for further information.
the particular merchandise in the volume
lar to the federal cost of goods sold.
usually purchased by the taxpayer. Market
The costs requiring capitalization under
applies to the basic elements of cost includ-
section 263A are not deductible until the
Line 1
ing raw materials, labor and burden. If IRC
year’s production process is complete for the
Inventory at Beginning of Year
section 263A applies, the basic elements of
finished pellets.
Enter the cost of raw materials, work in
cost must reflect the current bid price of all
process, and materials and supplies used in
Materials and supplies such as hardware
direct costs and all indirect costs properly
production. If this amount differs from the
and chemicals used in mining and ben-
allocable to goods on hand at the inventory
closing inventory of the prior year, attach
eficiation are charged to the cost of pellets
date.
to your return a schedule explaining the
produced. Those not used are treated as
difference.
Line 9b. Inventory may be valued below
deferred charges, deductible as an expense
cost when the merchandise is unsalable at
when used.
Line 2
normal prices, or unusable in the normal
Attach a schedule itemizing your IRC sec-
Purchases
way because the goods are subnormal due
tion 263A costs included on line 4.
Include the cost of all supplies purchased
to damage, imperfections, etc., within the
for mining and pellet production.
meaning of IRC section 1.471-2(c). The
Line 5
goods may be valued at the current selling
Other Costs
Line 3
price, minus direct cost of disposition, but
Other costs chargeable to the cost of pellets
Labor
not less than scrap value, if such a price can
produced include:
Include all direct and indirect labor used in
be determined.
production.
• Freight-In. Include freight-in, express-in
Line 9c. If you changed or extended your
and cartage on raw materials and supplies
inventory method to LIFO and wrote up
used in production.
the opening inventory to cost in the year
• Overhead Expenses. Overhead expenses
of election, report the effect of the write-up
include rent, heat, light, power, insurance,
as other adjustments (Form M30-I, line 7)
depreciation, taxes, maintenance, labor
proportionately over a three-year period be-
and supervision.
ginning with the year of the LIFO election.
• Depreciation Incurred to Produce Pel-
lets. If you include an amount on line
5 for depreciation incurred to produce
pellets, also include this amount on Form
M30-I, line 15b.
Attach a schedule detailing the amounts
included on line 5.
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