Accounting for PPP - Income prior to forgiveness?

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#1
Wiles  
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Client has a fiscal year end of June. By the end of June, they expect to have utilized about 80% of the PPP funds on qualifying expenses. They will apply for forgiveness after their fiscal year ends.

They expect to get full forgiveness and they would like to show the PPP income in their 6/30/20 fiscal year.

I read this article and it seems to say there is wiggle room to do that.
https://www.journalofaccountancy.com/ne ... dance.html

But then I go here and I don't get the same feeling:
https://www.aicpa.org/content/dam/aicpa ... 200-18.pdf
 

#2
TTMM  
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What I read is that a business has the choice to follow Topic 470 and treat the amount as a loan and recognize income when its forgiven. Or can follow IAS 20 and treat the amount as a government grant. This would then allow the business to recognize "other income" as the proceeds are used.
 

#3
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Thought it was not being treated as income if forgiven? If forgiven and treated as income, it sure as hell seems reasonable to allow associated expense deduction. I have not been paying attention to IFRs since they are forever changing, so is this a new thing?
 

#4
Wiles  
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This is the Accounting Forum. The forgiven loan will show up as income on the financial statements.
 

#5
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Wiles wrote:This is the Accounting Forum. The forgiven loan will show up as income on the financial statements.


And GAAP vs. IRC? IRC is really what we are all caring about...
 

#6
COGS  
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Thank you for starting this topic!!

From the first Journal of Accountancy Article: Once there is reasonable assurance that the conditions will be met, the earnings impact of the government grants would be recorded on a systematic basis over the periods in which the entity recognizes as expenses the related costs for which the grants are intended to compensate.

This would match I would think the IRS guidance to not deduct the expenses in the year paid.

So, from an accounting perspective, are we in agreement that we can just Debit the Loan and Credit "Non-Deductible Expenses reimbursed by PPP funds" or some such thing.

I have an Oct. year end and the PPP was formally forgiven in November. But given IRS guidance in Rev. Ruling 20-27 says you can't deduct the expenses in the year paid I want to just jettison the liability and be done. But as this client gives their financials to a bank, I don't want to advocate for something that would incorrectly understate liabilities and incorrectly record contingent income.


HOLDING
A taxpayer that received a covered loan guaranteed under the PPP and paid or incurred certain otherwise deductible expenses listed in section 1106(b) of the CARES Act may not deduct those expenses in the taxable year in which the expenses were paid or incurred if, at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness of the covered loan on the basis of the expenses it paid or accrued during the covered period, even if the taxpayer has not submitted an application for forgiveness of the covered loan by the end of such taxable year.
 

#7
Wiles  
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COGS, I am trying to keep this discussion about GAAP rules, thus its on the accounting forum. Under GAAP, I believe the credit would go to some sort of Other Income account.
 

#8
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Wiles wrote:COGS, I am trying to keep this discussion about GAAP rules, thus its on the accounting forum. Under GAAP, I believe the credit would go to some sort of Other Income account.


This is how I intend on handling it for GAAP but have not reached the point of preparing any financials that include it:

https://www.mlrpc.com/articles/aicpa-guidance-on-accounting-for-ppp-loans-under-us-gaap/
 

#9
COGS  
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Thank you. I was trying to get a GAAP answer as the client does give their accrual financials to a bank. Internally prepared.

So, your article says you can elect to treat it as a grant deferred grant income liability to be offset when the qualifying expenses are paid. Which were all paid in the year ended October 2020. So I am taking that to mean that I can do what I want and debit the debt, credit income or offset the expenses and call it a day without violating GAAP rules for contingent income or something and will not be understating liabilities as the loan was formally forgiven in November for an October year end.

"Entities that expect to meet the PPP loan eligibility criteria for forgiveness and conclude that the PPP loan represents, in substance, a grant that is expected to be forgiven may elect to account for the PPP loan funds received as a grant.

If a for-profit business entity elects this option, the initial cash inflow from the PPP loan will be recorded as deferred grant income. Once there is reasonable assurance that the forgiveness conditions will be met, the entity will reduce the deferred grant income balance, with the offset through earnings, over the period of time that the entity recognizes the related eligible expenses. The entity may elect to record the offsetting credit through earnings as either other income or as a reduction of the related operating expenses.

Am I reading into that what I want it to mean?
 

#10
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COGS, your line of thinking is the same as mine based on the article I posted and others I have read. I mean, let's also face reality--every company expects to meet forgiveness criteria, and so therefore the treatment is appropriate even in advance of actual forgiveness.
 

#11
Bob A  
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Based on what I'm reading here; for purposes of 1120S (2020) report the "Emergency EIDL Grant Funds" on Schedule K Line 16C and the PPP Funds received as "Deferred Grant Income-PPP" also on Schedule K Line 16C.
Input is appreciated.
 

#12
COGS  
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Bob, I end up with it on 16b "Other Tax Exempt Income." I am trying to get a discussion on the tax board on these preparation questions. viewtopic.php?f=8&t=20222
 

#13
Bob A  
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Yes, COGS.... my-bad 16b. ty
 


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