| ID | Status | Date | Public/Private | Industry | AHACPA Contact |
|---|---|---|---|---|---|
| #6893 | Closed | public | Multifamily | Les Sparks |
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I have a non-for profit client which received a loan/grant from the city of [redacted] for the purchase of a building and commercial kitchen equipment in order to establish a “Food Incubator”. The funds are HUD CBDG funds. The agreement states that the $2,000,000 is a loan which will be forgiven after five years if certain conditions are met. My questions are 1) how do I treat this for accounting purposes? As a loan initially and then as a grant once the conditions are met after the five years have passed? 2) What should be reported on the schedule of federal expenditures and in what time period? The building was actually purchased prior to receiving the loan/grant from the City. The commercial kitchen equipment will be purchased in phases as the project is developed. 3) What are the audit requirements related to the agreement? I’ve attached the agreement. Thank you very much for you assistance. |
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From Les Sparks: The treatment is the easiest of the questions. Since there is no real decrease in the loan obligation during the 5 year period, I would treat it as a Grant. However, since it is repayable during the 5 year period, I cannot go immediately to a grant. I would consider treating this in a manner similar to Section 202 Capital Advance. I would treat it as a grant, that is not recognizable until the compliance period ends and the threat of repayment is gone. For year-to-year compliance, I would treat the initial years as an expenditure each year as it has ongoing compliance requirements. These may be simply related to measuring the individuals participating and the outcomes achieved. Once the period is up, there is one final audit int he last period. That is how I would do it. Les |