Assignment on the Nutrition Corporation food selling company

 Executive Summary the Nutrition Corporation food selling company

The Nutrition Corporation is a food selling company since last many years company is involved in selling online food products including healthy food items and packed food to the targeted market. The Nutrition Corporation deliver their products by shipping and other private transportation depending upon the location of the customer. Depending upon the corporate policies Nutrition Corporation pays sales taxes in all states other than the Virginia state. In this state, Nutrition Corporation is working for the last five years with the same behavior towards sales tax. 

Following the historical information of Nutrition Corporation stated in the given case scenario, the company has never collected and remitted sales taxes to Virginia state even when the state has clear rules and laws about the sales taxes from the service and manufacturing businesses. The memorandum is written on the Nutrition Corporation sales taxes accounting treatment for the fiscal year ended December 2019. The memorandum will cover analysis of important facts regarding the unpaid sales taxes in Virginia state but mentioned in the financial statement of the company for the accounting year 2019.

1.      Analysis The Nutrition Corporation food selling company

           This section is further divided into two sections the first about the description of issues and facts faced by the Nutrition Corporation and its financial statements over the selected time duration. While the second section is containing information about the analysis of facts. In the second section, the current situation of financial statement recorded entries and details in this financial statement and other important facts about the operations of Nutrition Corporation in Virginia state in the light of international accounting standards and FASB Accounting Standards Codification (ASC). The authoritative guideline of FASB Accounting Standards Codification (ASC) will be used for the treatment of unpaid sales included in the financial statements for the year ended December 31, 2019 ( when the financial statement was issued on February 28, 2020, in the annual report of 2019). Moreover, this FASB ASC guideline will be also used for the accounting treatment of Nutrition’s decision to participate in the tax amnesty program announced on March 15, 2020, as well as the accounting treatment for the $25 million payment made on June 15, 2020.

1)      Description of the Issues and Facts The Nutrition Corporation food selling company

          The key issues for the Nutrition Corporation are categorized into three main categories. Firstly, the Nutrition Corporation is not paying sales tax to the Virginia State from the last 5 years. The distribution operations in this state are also executed without the payment of sales taxes. According to the recent details about the financial statements and information reports, the company has never collected and remitted sales tax to this state. However, following the company’s information, the risk of detection to not be probable. An estimated amount of sales tax to be paid to the Virginia State for the operations of the last 5 years is around $50 million-plus $6 million in interest and $4 million in penalties. Thus, conclusively company have to pay at least $60 million to clear all accounts concerning with the payment of sales tax to the Virginia State.

       The second key issue to be handled in the financial statements by the using the guideline of FASB ASC is accounting treatment for Nutrition’s decision to participate in the tax amnesty program announced on March 15, 2020. Following the available financial information, the governor Janson (who is the governor of Virginia) has made an announcement for the tax amnesty program on March 15, 2020. Under this program, all private and local organizations which have not paid sales tax amount to the government or directly breached sales tax will be given an opportunity to get registered as the taxpayer for future business operations. In case they get registered for this sales tax program they will be forgiven by the government for their previous actions of breaching sales tax amounts and unpaid sales tax from past business operations. This amnesty program has some terms and conditions which are 1) 50 per cent of all unpaid sales tax and (2) all interest and penalties on unpaid taxes. In brief, Nutrition management has made a decision to take advantage of this tax amnesty program in the state of Virginia.

            The third major issue of Nutrition Corporation is accounting treatment for the payment of $25 million made on June 15, 2020, after the completion of the fiscal year 2019 and publication of its annual report. Although, the information provided about the case suggests its adjustment in the accounting year of 2019 as it was related to the business operations of 2019 instead of 2020. In accordance to the company, on June 15, 2020, Nutrition completes the necessary paperwork and other actions to participate in the program and pays Virginia $25 million to settle its obligation through December 31, 2019. However, as the settlement was for the operations of 2019, therefore, it should be stated in the financial statement of 2019 instead of 2020 even when payment was recovered and reported in 2020.

2)      Analysis of Facts The Nutrition Corporation food selling company

             The FASB Accounting Standards Codification (ASC) provide a guideline for the auditing and accounting treatment of the journal entries and financial statement of the companies regarding sales tax and other important considerations. Considering the FASB ASC guideline the suggested accounting treatment for each of the identified accounting issues is stated below that can be useful for the Nutrition Corporation to overcome their issues in an appropriate manner.

1)      Unpaid Sales Tax The Nutrition Corporation food selling company

The FASB ASC has introduced new standards for the sales taxes according to which companies are required to record their sales taxes and remitted sales tax to governmental authorities in the income statement of the company. Following FASB issue no. 06-3, the organization is responsible to write the same amount of sales tax in the income statement (or statement of profit and loss) that they have paid as its sales tax amount to local and state government. Modification and manipulation of sales tax amount are against the accounting standards of FASB ASC. Following the tax agenda of FASB ASC, each individual transaction by the retailer for retail sales will be statutorily determined on the percentage of suggested sales tax by the state or local government. In accordance with this, the Nutrition Corporation have unpaid tax amount around $50 million for the last five years due to the state government of Virginia. While in case of delay and penalties, the company is also required to pay an additional amount of $10 million to the state government.

However, FASB ASC standards [ASC 450 – 20 – 25—2, ASC 450 – 20 -25 – 6, and ASC 450 – 20 – 25 – 7] suggest that Nutrition Corporation has consideration regarding the risk of detection as not probable therefore company is not required to provide provisions on their financial statement (on 31st December 2019]. In fact, such issues can be handled just by adding notes in the financial statement of the company. The Nutrition Corporation need to add a note in the annual report of the company regarding the loss contingency. The company will add a sum of $60 million amount ($50 million + $4 million + $6 million = $60 million) as the amount of loss disclosed for loss contingency regarding the fiscal year 2019 in the notes section for the income statement.

2)      Tax Amnesty The Nutrition Corporation food selling company

As stated by the government of Virginia, all unregistered taxpayers will be given the opportunity to get registered as taxpayers and become a legal business organization in the state, therefore, becoming a registered taxpayer is the best option for Nutrition Corporation. In accordance to the FASB standards [ASC 250 – 10 – 50 – 9, ASC 250 – 10 – 50 – 10, and ASC 250 – 10 – 50 – 11] Nutrition Corporation need to recognize its total amount of liability as $25 million in their balance sheet of 2020. The decision of tax amnesty will not influence the liabilities of 2019, therefore, all loss or changes will be recorded in the financial statement of 2020 only because of its relevancy under the standards of IFRS, FASB ASC, and other international standards by GAAP.

3)      Payment made on June 15, 2020 The Nutrition Corporation food selling company

Following the FASB ASC standards for this transaction, it is clear that the financial statement of 2019 does not require any kind of changes in its income statement and balance sheet sections. The amount of $25 million is paid in June 2020 which is not included in the fiscal year of 2019. Following ASC 250 -10- 50- 8 and ASC 606-10-55-49, the payment of $25 June will have the following journal entry for the financial statement of 2020:

4)      Conclusion the Nutrition Corporation food selling company

Summarizing the whole memorandum, Nutrition Corporation needs to make accounting treatment for its sales tax. The unpaid sales taxes in the Virginia state by the Nutrition Corporation during 2019 and last many years of its operations in this state is around $50 million which will be mentioned in the notes section only. While the payment of $25 million will be recorded in the statement of 2020. 

References The Nutrition Corporation food selling company