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- Jul 5, 2011
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We are having a debate between the president of our company and the accounting department, I am hoping someone can help me find the correct answer to the problem.
Awhile back (June of 2010) we recieved a grant from the state to install a elevator. The grant was receorded as revenue and the money was held in the bank. In July we paid half of the price to install the elevator to the contractor. This payment was recorded as credit to cash and debit to buildings (asset). The elevator was finished in August and the final payment was made using the same entry as noted above. In August we started recroding the accumulated depreciation.
Our President is saying the elevator can not be an asset because technically we didn't pay for it. The cost of the asset was not an expense to us so it should not be depreciated.
Our Auditors are saying yes it is an asset and needs to be depreciated.
Our Accounting manager is saying the revenue was overstated in June. The grant should be deferred and matched against the expense (allocated over the life of the asset).
Can anyone tell me who is right or how this transaction should have been handeled? If we don't record the asset and we sell it we will have a big gain which isn't accurate. Or if we expense the depreciation each month we will be showing an expense which really isn't ours.
Awhile back (June of 2010) we recieved a grant from the state to install a elevator. The grant was receorded as revenue and the money was held in the bank. In July we paid half of the price to install the elevator to the contractor. This payment was recorded as credit to cash and debit to buildings (asset). The elevator was finished in August and the final payment was made using the same entry as noted above. In August we started recroding the accumulated depreciation.
Our President is saying the elevator can not be an asset because technically we didn't pay for it. The cost of the asset was not an expense to us so it should not be depreciated.
Our Auditors are saying yes it is an asset and needs to be depreciated.
Our Accounting manager is saying the revenue was overstated in June. The grant should be deferred and matched against the expense (allocated over the life of the asset).
Can anyone tell me who is right or how this transaction should have been handeled? If we don't record the asset and we sell it we will have a big gain which isn't accurate. Or if we expense the depreciation each month we will be showing an expense which really isn't ours.