Deferred Income

3 Months Ended

Jun. 30, 2020

Revenue Recognition and Deferred Revenue [Abstract]

Deferred Income

Note 6. Deferred Income (Continued)

In June 2020, the AICPA issued Technical Question and Answer (“TQA”) 3200.18, Borrower Accounting for a Forgivable Loan Received Under the Small Business Administration Paycheck Protection Program. The TQA addresses accounting for nongovernmental entities that are not Not-For-Profits, i.e. business entities, that believe the PPP loan represents, in substance, a grant that is expected to be forgiven, it may account for the loan as a deferred income liability. The TQA further states that if such an entity expects to meet the PPP’s eligibility criteria and concludes that the PPP loan represents in substance, a grant that is expected to be forgiven, it may analogize to International Accounting Standard (“IAS”) 20 to account for the PPP loan.

IAS 20 provides a model for the accounting of different forms of government assistance, which includes forgivable loans. Under this model, government assistance is not recognized until there is reasonable assurance (similar to the probable threshold in U.S. GAAP) that any conditions attached to the assistance will be met and the assistance will be received.

Once there is reasonable assurance that the conditions will be met, the earnings impact of the grant is 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. Hence, a business entity would record the cash inflow from the PPP loan as a deferred income liability and subsequently reduce the liability, with the offset through earnings as either a credit in the income statement or a reduction of the related expenses, as it recognizes the related cost to which the loan relates, for example, payroll expense.

The Company applied for and received proceeds of $246,200 through the PPP program on May 7, 2020, prior to the enactment of the Act. Based on the flexibility provided under the Act, the Company has elected to extend its Covered Period to 24 weeks. The Company has determined both through internal calculations and those provided by the AICPA’s forgiveness model, that all criteria for forgiveness based on both the CARES Act and the Act have been met as of July 15, 2020 and that the PPP loan will be 100% forgiven. In analogizing to IAS 20, the Company considers the PPP loan a grant that is expected to be forgiven and as such, has recorded the proceeds as a deferred income liability and will recognize the PPP grant as a reduction of the related expenses to which the loan is intended to compensate.

For the period May 7, 2020 through June 30, 2020, the Company incurred the following costs related to and compensated through the PPP proceeds and which are expected to be forgiven in their entirety:

Salaries and wages	$	156,224
Group health insurance		32,758
401K match		4,157
Subtotal payroll expenses		193,139
Rent		40,925
Utilities		2,312
Total eligible and forgivable expense under PPP program	$	236,376

On June 30, 2020, in accordance with methods acceptable under IAS 20, the Company reduced the PPP deferred income liability and offset the expenses listed above by their respective amounts, leaving a balance remaining of $9,824 as of that date.