Covid or PPP disclosures

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#1
COGS  
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My PPC Guide on preparing Financial Statements is current as of August 2020. I don't see anything on Covid 19 disclosures. Last year I had an A&A class that said to put this note in. "In 2020, domestic and international economies face uncertainty related to the impact of the COVID-19 disease. The company may be adversely affected through decreases in management fee revenue or other difficulties providing services. Management is currently evaluating the impact it will have on future operations."

I also don't see anything to report on PPP loans. I did put in a discussion about the loan into the Income Tax note. But that is it.

Does anyone know of anything new I should know about?

This is what I said about PPP: (I am showing the income in the "Other Income and Expenses" section.

The company participated in the Small Business Administration’s “Paycheck Protection Program.” The loan was fully forgiven and is treated as a tax-free grant in accordance with AICPA and IRS guidance. The forgiven loan is not tax free on the state income tax return and for this reason the company has a $9,XXX California income tax balance due which will be expensed when paid in accordance with the cash basis income tax method of accounting. Because of the tax-free PPP loan/grant, the company had negative income on its federal income tax return and has a $24,XXX net operating loss carry forward which can be carried forward indefinitely.
 

#2
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COGS wrote: Because of the tax-free PPP loan/grant, the company had negative income on its federal income tax return and has a $24,XXX net operating loss carry forward which can be carried forward indefinitely.


You sort of lost me right here. Why would the PPP forgiveness create negative income and how would it have anything to do with an NOL?
 

#3
COGS  
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Let's say you have book income of $100K which included $120K PPP Grant. That grant gets reported on the M-1 on line 7 as income on books not on the tax return. So $100K less $120K of income excluded for tax purposes results in a $20K NOL on the tax return.
 

#4
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Yes, but the forgiveness of the PPP loan did not create that loss. Whether the loan was forgiven in 2020 or not until 2021, you were going to have a loss.

The wording you used "Because of the tax free/loan grant....." implies the PPP loan created the loss.
 

#5
eze  
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There's an agrument that this is a government grant and there is no guidance for grant to a for-profit entity. So we're in uncharted territory.

I agree with Berkshire....the wording is awkward. Word like " the company received PPP, it's excluded from income for tax purposes. The loan was reclassified to equity upon foregiveness from SBA." I would keep it simpler.

Check out the SEC's Edgar website and read some annual reports for companies that took PPP. That is the best way to get current samples....PPC is great..but by the time they publish, this will be old news.
 

#6
COGS  
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"The loan was reclassified to equity upon foregiveness from SBA." I would keep it simpler."

I appreciate the comments. However, where I got my general direction was from this article in this forum a few months ago. And I like it.
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.
https://www.mlrpc.com/articles/aicpa-gu ... r-us-gaap/
 

#7
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For the financials I prepare, few if any disclosures are made. Where I do "some" disclosures and PPPL or EIDL exist, I have been doing very brief disclosures of what occurred, status of forgiveness, or if EIDL, when repayment is currently expected to commence.

One was an HOA so to not have the members start complaining about it, I did a brief explanation of why the PPPL was applied for and accepted, how it was spent, and then when it was fully forgiven since financials were issued AFTER forgiveness in 2021.

But, very glad I am not ever in a position of having to fully adhere to GAAP with disclosures, especially with the COVID matters at hand.
 


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