UNIFORM CAPITALIZATION RULES Definition

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UNIFORM CAPITALIZATION RULES (UNICAP), in the U.S., is a method of valuing inventory for tax purposes that requires capitalization of direct costs, e.g. material and labor, and an allocable portion of indirect costs that benefit or are incurred because of production or resale activities. Certain expenses must be included in the basis of the property or in inventory costs rather than currently deducted. These costs are then recovered through depreciation or amortization or as cost of goods sold.

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SHORT-TERM usually encompasses a calendar of 12 months or less.

OPERATING INTEREST is the legal right to assets used to produce revenue, e.g., produce oil or gas from a well, accompanied by the responsibilities to pay production costs and assume the risks.

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