Common use of Simplified inventory method Clause in Contracts

Simplified inventory method. (i) In general. This paragraph (g)(3) provides a simplified method of capitalizing in- terest expense with respect to des- ignated property that is inventory. Under this method, the taxpayer deter- mines beginning and ending inventory and cost of goods sold applying all other capitalization provisions, includ- ing, for example, the simplified produc- tion method of § 1.263A–2(b), but with- out regard to the capitalization of in- terest with respect to inventory. The taxpayer must establish a separate capital asset, however, in an amount equal to the aggregate interest capital- ization amount (as defined in para- graph (g)(3)(iii)(C) of this section). Under the simplified inventory meth- od, increases in the aggregate interest capitalization amount from one year to the next generally are treated as reduc- tions in interest expense, and decreases in the aggregate interest capitalization amount from one year to the next are treated as increases to cost of goods sold.