# ASC 440-954-35: Commitments — Health Care Entities — 35 Subsequent Measurement

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/440/954/#35-subsequent-measurement)

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## ASC 440-954-35: 35 Subsequent Measurement

[Read section](https://asc.understandingaccounting.org/asc/440/954/#35-subsequent-measurement)

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#### Continuing Care Retirement Community

##### [440-954-35-1](https://asc.understandingaccounting.org/asc/440/954/#440-954-35-1)

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The obligation of a continuing care retirement community to provide future services and the use of facilities to current residents shall be subsequently measured annually in order to determine whether a liability shall be reported in the financial statements.

##### [440-954-35-2](https://asc.understandingaccounting.org/asc/440/954/#440-954-35-2)

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If the advance fees and periodic fees charged are insufficient to meet the costs of providing future services and the use of facilities, the continuing care retirement community shall record a liability based on actuarial assumptions (such as mortality and morbidity rates), on estimates of future costs and revenues, and on the specific continuing care retirement community's historical experience and statistical data. The liability is equal to the amount that is expected to be incurred to provide services and the use of facilities to individuals over their remaining lives under continuing care contracts (including resident-care, dietary, health care, facility, interest, depreciation, and amortization costs) in excess of the related anticipated revenues.

##### [440-954-35-3](https://asc.understandingaccounting.org/asc/440/954/#440-954-35-3)

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The liability related to continuing-care contracts shall be the present value of future net cash flows, minus the balance of deferred revenue ([contract liability](https://asc.understandingaccounting.org/glossary/c/#contract-liability "An entity's obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer.")) (see Topic 606), plus depreciation of facilities to be charged related to the contracts, plus any unamortized incremental costs of obtaining a contract (see Subtopic 340-40), if applicable. The calculation shall be made by grouping contracts by type, such as all contracts with a limit on annual increases in fees, contracts with unlimited fee increases, and so forth. Cash inflows shall include revenue contractually committed to support the residents and inflows resulting from monthly fees including anticipated increases in accordance with contract terms. This shall include third-party payments, contractually or statutorily committed investment income from services related to continuing care retirement community activities, [contributions](https://asc.understandingaccounting.org/glossary/c/#contribution "An unconditional transfer of cash or other assets, as well as unconditional promises to give, to an entity or a reduction, settlement, or cancellation of its liabilities in a voluntary nonreciprocal transfer by another entity acting other than as an owner. Those characteristics distinguish contributions from:Exchange transactions, which are reciprocal transfers in which each party receives and sacrifices approximately commensurate valueInvestments by owners and distributions to owners, which are nonreciprocal transfers between an entity and its ownersOther nonreciprocal transfers, such as impositions of taxes or legal judgments, fines, and thefts, which are not voluntary transfers. In a contribution transaction, the resource provider often receives value indirectly by providing a societal benefit although that benefit is not considered to be of commensurate value. In an exchange transaction, the potential public benefits are secondary to the potential direct benefits to the resource provider. The term contribution revenue is used to apply to transactions that are part of the entity's ongoing major or central activities (revenues), or are peripheral or incidental to the entity (gains). See also Inherent Contribution and Conditional Contribution.") pledged by donors to support continuing care retirement community activities, and the volume of deferred nonrefundable advance fees. Cash outflows shall be composed of operating expenses, including interest expense and excluding selling, and general and administrative expenses. Anticipated cost increases affecting these operating expenses shall be considered in determining cash outflows. The expected inflation rate as well as other factors shall be considered in determining the discount rate. In calculating the liability, the specific continuing care retirement community's historical experience or statistical data relating to the residents' life spans shall be used. The life spans used shall be the same as those used to recognize revenue. For a new continuing care retirement community, either relevant data of similar communities in the area or relevant national industry statistics may be used if they are deemed to be representative.

##### [440-954-35-4](https://asc.understandingaccounting.org/asc/440/954/#440-954-35-4)

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See Example 1 (paragraph [954-440-55-1](https://asc.understandingaccounting.org/asc/440/954/#440-954-55-1)) for an illustration of this guidance.