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. (ii) Segmentation of inventory—(A)