[Anonymous]

Working on NINJA-FAR- Gov MCQ…I’m really struggling with Revenue Recognition (Deferred, Receivables, Revenue earned).

Example:

The Dunstown County general fund received a notice of a federal grant award for an expenditure-driven (reimbursement) grant in the amount of $1,000,000. Included with the notice was an advance of $250,000. During the year, the County incurred $400,000 of qualifying eligible grant expenditures, and no additional money had been received from the grantor.

What would be the amount of deferred revenues reported at the end of the year by the general fund?

Could someone explain to me when how much revenue is recognized? Deferred Revenue? Receivable?

Any help would be greatly appreciated.

[Gabe]

Deferred revenue is the difference between the Advance and Qualifying expenditures. For the question above, since the advance is less than the qualified expenditures, there would be no deferred revenue.

Correct?

CPA, CFE
CISA- Experience will be completed by August 2016

[Anonymous]

Could you explain this to me like I've never seen seen accounting before? I'm just confused on what a Advance Expenditure and Qualifying expenditure is.

Also too, the Revenue earned is $400,000 in another question which I still don't understand

[juuustin]

Grant revenue is earned when it is spent. It is a strange quirk in the revenue recognition that even Gearty admits is strange during the Becker lecture.

In this question, $400,000 of revenue is recognized because the County spent $400,000 of grant-eligible expenditures. The fact that they haven't received the $400,000 doesn't matter. The $1,000,000 grant is reimbursable and they spent $400,000 that is qualified; that is revenue.

I also agree with Gabe that deferred revenue is $0 in this question. To change the facts a bit, let's say the gov't received $400,000 in advance but only spent $250,000. Revenue in that case would be $250,000 and deferred revenue would be $150,000.

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[Rocky123]

@juuustin

Thanks for explaining it. That makes sense. I was wondering about that question too.

P.S. Good luck on the 23rd! My date too.

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Rocky123, CPA

[Gabe]

Revenue earned is the amount of qualified expenditures. So…they gave you a grant of $1,000,000, but only $400,000 qualified as revenue (according to the grant document).

I found this google doc that I have found helpful: https://sites.google.com/site/farnotes/gas-34/journal-entries–fund-based-vs-government-wide

CPA, CFE
CISA- Experience will be completed by August 2016

[Anonymous]

@juuustin thank you so much for the explanation. That makes sense.

@Gabe Thanks for you're help!

[Author]

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