Two fairly simple business questions

Factual Questions
1

  1. Today at my job (im a cook, prep cook, dishwasher etc.) i was portioning out spaghetti noodles and i dropped an order. How would the financial department of the restaurant write this off? $1 in lost product or $12 in lost revenue?

  2. International business taxes. How exactly do they work? I assume Mcdonalds has to pay Canadian federal and provincial taxes, and since they are based out of the US, Uncle Sam will want a piece of the pie, and they will have to pay state taxes too. When you look at all that it almost seems not worth it to become an international business, but it must be if they keep expanding.

Drown the fires of my economic ignorance!

2

It would be $1 in lost product. But I doubt that they are that precise. They’d simply have a “cost of goods sold” item or something like that. I don’t think they’d do anything by individual portions.

Note the revenue was not lost. The customer would get a different not-dropped portion. The restaurant would simply have to buy an additional portion. Buy 12 portions – serve 11 patrons.

3

  1. For tax and accounting purposes, raw materials and inventory are recorded and written off at cost. Sometimes, such as for internal inventory valuation/control, companies will use the retail cost, but I can’t imagine a restaurant marking up spaghetti.

  2. It depends.
    2a) Sometimes corporations set up international branches. So McDonald’s Canada might be a Canadian corporation that just happens to pay back some royalties or dividends to McDonald’s USA. Only the royalties/dividends are taxable in the US and their foreign source is not much of a challenge. This kind of thing can also be used for imports. One client of mine had a factory in Cambodia with a Cambodian company and sold the imports to a US company that acted as distributor. (This was great for him, too; Cambodia’s taxes were only 10% so he sold the goods at a price so as to maximize income on the Cambodian side. This example is just one reason why international business can be lucrative).
    2b) If a company (or individual) pays foreign tax on earnings that are also taxable in the US, they use Form 1116 to recover some or all of the foreign tax as a tax credit. In a simplified scenario, that means $100 in income is taxed $20 in Canada. It might normally be taxed $30 in the US, but you’d only pay the extra $10. (This happens all the time with investments in international stock; if you get paid dividends, you probably had some foreign tax withheld).