Common use of Profit and Loss Clause in Contracts

Profit and Loss. (a) The Profit and Loss of the Company for purposes of determining allocations to the Capital Accounts of the Members shall be determined in the same manner as the determination of the Company’s taxable income pursuant to Section 703(a) of the Code, except that (i) items that are required by Section 703(a)(1) of the Code to be separately stated shall be included; (ii) items of income that are exempt from inclusion in gross income for Federal income tax purposes shall be treated as Book income, and related deductions that are disallowed under Section 265 of the Code shall be treated as Book deductions; (iii) Section 705(a)(2)(B) Expenditures shall be treated as deductions; (iv) items of gain, loss, depreciation, amortization, or depletion that would be computed for Federal income tax purposes by reference to the Tax Basis of an item of Company property shall be determined by reference to the Book Value of such item of property; (v) the effects of upward and downward revaluations of Company property pursuant to Section 2.02 of this Appendix shall be treated as gain or loss respectively from the sale of such property; and (vi) any items that are specially allocated pursuant to Section 3.04 of this Appendix shall not be taken into account in computing Profit or Loss, but the amounts of those items are to be determined by applying rules comparable to those provided in subparagraphs (i) through (v) above, and clause (b) below. (b) In the event that the Book Value of any item of Company property differs from its Tax Basis, the amount of Book depreciation, depletion, or amortization for a period with respect to such property shall be computed so as to bear the same relationship to the Book Value of such property as the depreciation, depletion, or amortization computed for tax purposes with respect to such property for such period bears to the Tax Basis of such property. If the Tax Basis of such property is zero, the Book depreciation, depletion, or amortization with respect to such property shall be computed by using a method consistent with the method that would be used for tax purposes if the Tax Basis of such property were greater than zero. (c) Allocations to the Capital Accounts of the Members shall be based on the Profit or Loss of the Company as determined pursuant to this Section 3.01. Such allocations shall be made as provided in the Agreement except to the extent modified by the provisions of this Article 3.