FASB has published Accounting Standards Update (ASU) No. 2012-01, Health Care Entities (Topic 954): Continuing Care Retirement Communities — Refundable Advance Fees
. Subtopic 954-430, Health Care Entities — Deferred Revenue, requires that a continuing care retirement community recognize a deferral of revenue when a contract between a continuing care retirement community and a resident stipulates that (1) a portion of the advanced fee is refundable if the contract holder’s unit is reoccupied by a subsequent resident, (2) the refund is limited to the proceeds of reoccupancy, and (3) the legal environment and the entity’s management policy and practice support the withholding of refunds under condition 2. Questions have arisen in practice about cases where the refund depends on reoccupancy.
The ASU clarifies that an entity should classify an advance fee as deferred revenue when a continuing care retirement community has a resident contract that provides for payment of the refundable advance fee upon re-occupancy by a subsequent resident, which is limited to the proceeds of reoccupancy. Refundable advance fees that are contingent upon re-occupancy by a subsequent resident but are not limited to the proceeds of reoccupancy should be accounted for and reported as a liability.
For public entities, the ASU is effective for fiscal periods beginning after Dec. 15, 2012. For nonpublic entities, the ASU is effective for fiscal periods beginning after Dec. 15, 2013. Early adoption is permitted.