APPENDIX I

NOTES FROM MEETING WITH THE GAMBLES

John is forecasting total revenue to be around $$200,000$ by the time the year is over, and for IZI to show a net loss of $$50,000$ before considering the grant and amortization. Total assets should be around $$1,300,000$ including the $$1,245,000$ of additions $($see Appendix III$).$

Although John holds a business degree, he is not well versed in accounting and needs advice on the more complicated aspects of financial reporting. He has made the following decisions in the current year but needs your assistance in determining if they are correct:

Adventure course construction costs

John reported the $$1,245,000$ total as property, plant and equipment on the balance sheet. No amortization has been recorded to date, although John has stated that he plans to amortize the $$1,245,000$ over five years. John needs confirmation from us that capitalizing the full amount and amortizing it over five years is the right accounting treatment. $($Appendix III$)$

Government grant

John is not sure how to account for the government funding. He has reported both $$1$ million in capital funding and the $$250,000$ in operating funding already received as revenue. He needs to know if this is the right accounting treatment.

He also wonders if the $$1$ million received and the $$250,000$ received should be accounted for differently since these amounts were not for the same type of expenses. Please separately analyze the accounting for both funds received.