What was the income from loan forgiveness for Itan in 2022?
Itan Franchise · 2025 FDDAnswer from 2025 FDD Document
| Page 7 | ||||
|---|---|---|---|---|
| 2023 | 2022 | |||
| CASH FLOWS PROVIDED BY OPERATING ACTIVITIES | ||||
| Net earnings | $ | 272,146 | $ | 233,770 |
| ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH | ||||
| PROVIDED/(USED) BY OPERATING ACTIVITIES | ||||
| Depreciation | 443 | 1,543 | ||
| Loss on disposal of property and equipment | 900 | |||
| Income from loan forgiveness | :- | (74,517) | ||
| Changes in operating assets and liabilities: | 1// |
On February 7, 2022, the Company received forgiveness for the full portion of the PPP loan above. The Company has decided to account for it as a government grant. While GAAP does not contain guidance on the accounting for government grants, the Company is following the guidance in International Accounting Standards, or IAS, 20, Accounting for Government Grants and Disclosure of Government Assistance. Under the provisions of IAS 20, "a forgivable loan from the government is treated as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan." Under IAS 20, government grants are recognized in income as required activities are undertaken. Included in other income on the statement of earnings for the year ended December 31, 2022 is the full amount of the PPP loan, $74,517.
The CARES Act also provided an Employee Retention Credit ("ERC"), which is a refundable tax credit against certain employment taxes of up to $5,000 per employee for eligible employers. The tax credit is equal to 50% of qualified wages paid to the employees during a quarter, capped at $10,000 of qualified wages per employee throughout the year. The Company qualified for the tax credit in the second quarter of 2020, and the second quarter of 2021, totaling an accrued benefit of $31,452 related to the ERC. The credit is included in other income on the Company's statement of earnings for the year ended December 31, 2022.
Source: Item 23 — RECEIPT (FDD pages 44–190)
What This Means (2025 FDD)
According to Itan's 2025 Franchise Disclosure Document, the income from loan forgiveness in 2022 was a negative amount, specifically ($74,517). This figure is listed as a line item under 'ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH PROVIDED/(USED) BY OPERATING ACTIVITIES' within the cash flow statements. It is important to note that this is a deduction, indicating that the loan forgiveness positively impacted the cash flow from operating activities during that year.
This loan forgiveness relates to the Paycheck Protection Program (PPP) loan that Itan received. The forgiveness of the PPP loan is treated as a government grant and is recognized as income. The full amount of the PPP loan, $74,517, is included in other income on the statement of earnings for the year ended December 31, 2022. This means that while the loan forgiveness itself increased the company's income, it is presented as a negative adjustment in the cash flow statement to reconcile net earnings to net cash provided by operating activities.
For a prospective franchisee, this indicates that Itan has previously benefited from government assistance programs like the PPP. Understanding how these funds were managed and accounted for can provide insight into the company's financial management practices. It's also worth noting that the Employee Retention Credit (ERC) also contributed to Itan's income, totaling $31,452 related to the ERC, which is included in other income on the Company's statement of earnings for the year ended December 31, 2022.