Accounting Question for CPA's - Deferred Revenue

[Tidybuoy]

I received $1.5 mil from a state govenment for improvements to our plant in New Mexico. I recorded this as a Deferred Revenue Liability on my Balance Sheet.

I now want to start recognizing this over a 5 yr period. I'm not sure where I should record the revenue (either as an offset to depreciation or other income).

The funds were used to improve our plant and so we are seeing an increase to depreciation for the capital improvements. The state gave us the money to be expressly used for capital improvements however, we are required to hire 200 full-time employees over the course of 5 years which we have started doing but have not yet fulfilled this obligation - this will happen as we expand this business.

[HardDrive]

While there maybe folks on this board that can answer your question, this does seem like an issue that its worth spending a few $ to get sound professional advice.

[mattdavis11]

I don't have an answer, but have a question. Can you give the $1.5M back to the state and quit fvching over the taxpayers?

[wdfifteen]

I lived off of deferred income. It's like a tax free loan. I'm not sure it applies to your case, but you need a good CPA or tax accountant to guide you through this. A car owner's message board is probably not the place to get solid tax advice.

[Tidybuoy]

Originally Posted by mattdavis11

I don't have an answer, but have a question. Can you give the $1.5M back to the state and quit fvching over the taxpayers?

We've hired 150 new employees with this expansion and will hire an additional 50 over the next year.

[Tidybuoy]

Originally Posted by HardDrive

While there maybe folks on this board that can answer your question, this does seem like an issue that its worth spending a few $ to get sound professional advice.

I have a good CPA but I am trying get an answer tonight, if possible. I am also very fimaliar with the accounting rules but want clarification on where to post the monthly recognized revenue since it is tied to both capital expense and labor. The revenue is going to be posted one way or another, but it may be on one line vs. another.

[dad911]

Originally Posted by Tidybuoy

..... we are required to hire 200 full-time employees over the course of 5 years .....

Originally Posted by mattdavis11

I don't have an answer, but have a question. Can you give the $1.5M back to the state and quit fvching over the taxpayers?

Averaged over 5 years, only$3000 per employee. Cheaper than unemployment, and these employees pay back more in taxes.

Matt I have a question..... can you create 200 jobs for less?

[Tidybuoy]

Originally Posted by wdfifteen

I lived off of deferred income. It's like a tax free loan. I'm not sure it applies to your case, but you need a good CPA or tax accountant to guide you through this. A car owner's message board is probably not the place to get solid tax advice.

There are a lot of very smart people on this board and some may be in the profession, as I am too. Just asking a quick question here to educate myself prior to speaking to my CPA. I have had many deferred revenue situations but this was is a little different from the others and so I considering the proper treatment.

I was assuming off topic was not regulated on the type of questions that could be asked. Maybe I should start a thread on motor oil.

[Tidybuoy]

Originally Posted by dad911

Averaged over 5 years, only$3000 per employee. Cheaper than unemployment, and these employees pay back more in taxes.

Matt I have a question..... can you create 200 jobs for less?

It's even more complicated than that because we are required to create a variety of jobs. The amount of the grant was based on specific job categories and specific salary rated (including managers, lab techs, mechanics, laborers, etc).

We have also invested over $8mil of our own capital to bring this plant, that has been vacant for over 4 years, back to life.

[jwasbury]

You haven't provided enough information for any professional to give you a solid answer.

You must know (I hope) that US GAAP accounting for deferred revenue is not the same as income tax accounting for deferred revenue.

In my experience, the IRS provides very limited opportunities to defer revenue. One instance is in the case of long term contracts accounted for under % completion method. US GAAP allows the % completion method across a wide variety of businesses. IRS allows it only for businesses involved in long term construction contracts for real property. Aside from that, there are a couple of Rev Procs and/or Rev. Rulings that provide guidelines for deferring income from advance payments for goods and services. Its been a while since I've been in public practice, but I had to dive deep into the deferred revenue topic for tax purposes for a client and it was educational, to say the least.

[jwasbury]

Looking back at the OP, it doesn't seem that you're query is tax treatment related. If you PM me your email, I can share interpretive guidance for grant accounting pulled from my accounting research portal.

[Tidybuoy]

This has nothing do do with taxes. This is for internal books only and my issue is should I be reporting the monthly credit to offset depreciation, payroll, or other income.

Spoke with my CPA this morning and we will report as Other Income.

Thank you for all the responses.

[Bob Kontak]

What is your basis for amortization to Other Income? Heads hired? Actual expenditure?

[Bob Kontak]

Originally Posted by jwasbury

If you PM me your email, I can share interpretive guidance for grant accounting pulled from my accounting research portal.

I like this.

Not sure what your downside is given I can't embrace materiality from the info provided.

Are you traded publically?