The following table identifies the changes made to this Subtopic.
This Subtopic provides guidance on commitments for health care entities within the scope of this Topic.
A continuing care retirement community expects to provide services and the use of facilities to individuals over their remaining lives under continuing-care contract agreements. The nature and extent of such services depend on such variables as the individual's age, health, sex, and economic status upon entering the continuing care retirement community.
Continuing care retirement community facilities may be independent or they may be affiliated with other health care facilities. They usually provide less intensive care than do hospitals. They generally supply required continuous nursing service or appropriate assistance to residents who have a wide range of medical conditions and needs.
An advance fee may be met by transferring a resident's personal assets (which may include rights to future income) or by paying a lump sum of cash to the continuing care retirement community. Advance fees received for future services may be refunded at the occurrence of some future event, such as death, withdrawal from the continuing care retirement community, termination of the contract, or reoccupancy of a residential unit. The amount of the refund generally is based on contractual provisions or statutory requirements.
Payment of an advance fee generally is required before a resident acquires a right to reside in an apartment or residential unit for life. A portion of advance fees may be refundable by rescission within a legally set time period or if a certain future event occurs, such as the death or withdrawal of a resident or termination of the contract. Some refunds are paid only if a residential unit is reoccupied.
Continuing care retirement community refund policies vary either by region or according to statutory requirements, but generally the amount of the refund is based on provisions specified in a contract. For example, some contracts require a refund of the advance fee, less a reasonable processing fee. Amounts refunded may be based on a fixed amount or percentage, an amount that declines to a fixed amount over time, an amount that declines to zero, or an amount based on the resale amount. Refunds may be contingent on vacating the unit, resale of the unit, or passage of a fixed period of time if the unit is not resold.
Some contracts between a continuing care retirement community and a resident stipulate that all or a portion of the advance fee may be refundable if the contract holder's unit is reoccupied by another person. The source of money for the payment is from the proceeds of the advance fees collected by the continuing care retirement community from the next resident of the reoccupied unit. The terms governing how the proceeds from the next resident are to be paid to the previous resident vary from contract to contract.
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section
954-10-15.
The continuing care retirement community assumes a risk in estimating the cost of future services and the use of facilities. Although many continuing care retirement communities are allowed contractually to increase periodic fees, some contracts may restrict increases in periodic fees and require continuing services without additional compensation.
See Example 1 (paragraph
954-440-55-1) for an illustration of this guidance.
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.
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.
See Example 1 (paragraph
954-440-55-1) for an illustration of this guidance.
The following tables illustrate the present value of net cash flow on 12/31/X6.
![](\"/asc-img/GUID-0742E35A-7E88-410D-8880-066FF26A944B-low.gif\")
\"Estimated Remaining Life (in Months) on 12/31/X6\" Estimated Cash Inflows Resident 19X7 19X8 19X9 20X0 A 36 \" $12,000 \" \" $12,600 \" \" $13,230 \" - B 22 \" 12,000 \" \" 10,500 \" - - C 27 \" 12,000 \" \" 12,600 \" \" 3,308 \" - D 38 \" 12,000 \" \" 12,600 \" \" 13,230 \" \" $2,315 \" Estimated cash inflows \" $48,000 \" \" $48,300 \" \" $29,768 \" \" $2,315 \"
![](\"/asc-img/GUID-40489FB1-7CD4-409D-A45B-A9A04421F508-low.gif\")
\"Estimated Remaining Life (in Months) on 12/31/X6\" Estimated Cash Outflows Resident 19X7 19X8 19X9 20X0 A 36 \" $10,000 \" \" $12,000 \" \" $15,000 \" - B 22 \" 15,000 \" \" 11,000 \" - - C 27 \" 14,000 \" \" 17,000 \" \" 5,000 \" - D 38 \" 8,000 \" \" 12,000 \" \" 14,000 \" \" $4,000 \" Estimated cash outflows \" $47,000 \" \" $52,000 \" \" $34,000 \" \" $4,000 \" Recapitulation 19X7 19X8 19X9 20X0 Cash inflows \" $48,000 \" \" $48,300 \" \" $29,768 \" \" $2,315 \" Cash outflows \" (47,000)\" \" (52,000)\" \" (34,000)\" \" (4,000)\" \" $1,000 \" \" $(3,700)\" \" $(4,232)\" \" $(1,685)\" Present value of net cash flows discounted at 10 percent \" $(7,137)\"
The following tables illustrate the depreciation of facilities to be charged to current residents.
![](\"/asc-img/GUID-B8BB8644-E80F-4411-9C3E-CC685A0AB4B1-low.gif\")
Original cost of facility\t\" $17,000,000 \" Cost of facility allocable to revenue-producing service areas\t\" $(2,000,000)\" Cost of facility to be allocated to residents (including common areas)\t\" $15,000,000 \" Useful life\t40 years Annual depreciation using straight-line method\t\" $375,000 \" Number of residents expected to occupy the facility\t200 Annual depreciation per resident\t\" $1,875 \" Monthly depreciation per resident $156
![](\"/asc-img/GUID-F14F3925-61FA-4719-A91F-1640E99F3D55-low.gif\")
Resident \"Estimated Remaining Life (in Months) on 12/31/X6\" 19X7 19X8 19X9 20X0 A 36 \" $1,875 \" \" $1,875 \" \" $1,875 \" - B 22 \" 1,875 \" \" 1,560 \" - - C 27 \" 1,875 \" \" 1,875 \" 468 - D 38 \" 1,875 \" \" 1,875 \" \" 1,875 \" $312 Yearly estimated depreciation of facilities to be charged to current residents \" $7,500 \" \" $7,185 \" \" $4,218 \" $312 Total estimated depreciation of the use of facilities to be charged to the current residents \" $19,215 \"
The following table illustrates the liability for providing future services and the use of facilities to current residents.
![](\"/asc-img/GUID-11365D79-EF72-4119-A43B-6EA0A5C9CEA4-low.gif\")
Present value of future net cash outflows \" $7,137 \" Minus: Deferred revenue (contract liability) on 12/31/X6 \" $(27,027)\" Plus: Depreciation to be charged to current residents \" $19,215 \" Asset recognized for the incremental cost of obtaining the contract—see paragraph 954-440-55-1(c) \" $17,000 \"\t(a) Liability for providing future services and the use of facilities to current residents on 12/31/X6 \" $16,325 \" (a)\t\"These numbers are for illustrative purposes only and no inference has been made as to the recoverability of the $17,000.\"