For an existing PPP asset, the agency (transferor) must:

• Recognize (at the commencement of the PPP term) both:
  • A receivable for installment payments (if any) to be received in relation to the PPP
    — AND —
  • A deferred inflow of resources
• Measure improvements (made by the operator to an underlying PPP asset) at the acquisition value when the improvements are placed into service.
• Apply all other accounting and financial reporting requirements relevant to the improvements to the underlying PPP asset, including depreciation and impairment.

For an underlying PPP asset that is a new asset (purchased or constructed by the operator) and the PPP does not meet the definition of a Service Concession Arrangement (SCA) — when the underlying PPP asset is placed into service, the agency (transferor) must recognize all of the following:

• A receivable for the underlying PPP asset purchased or constructed at the operator’s estimated carrying value of the PPP asset as of the expected date of the transfer of ownership.
• A receivable for installment payments (if any) to be received in relation to the PPP.
• A deferred inflow of resources.

If an underlying PPP asset is a new asset (purchased or constructed by the operator) and the PPP meets the definition of an SCA, the agency (transferor) must recognize all of the following:

• A receivable at acquisition value for the underlying PPP asset when placed into service.
• A receivable for installment payments (if any) to be received in relation to the PPP.
• A deferred inflow of resources.

For PPP transactions, in subsequent financial reporting periods, the agency (transferor) must:

• Calculate the amortization of the discount on the receivable for installment payments and report that amount as an inflow of resources (for example, interest revenue) for the period.
• Allocate any PPP payments received to the accrued interest receivable first and then to the receivable for installment payments.
• Recognize the deferred inflow of resources as inflows of resources (for example: revenue) in a systematic and rational manner over the PPP term. The deferred inflow of resources must be adjusted by the same amount as any change resulting from the remeasurement of the receivable for installment payments or the remeasurement of the receivable for the underlying PPP asset.

For SCA transactions, subsequent financial reporting periods for the agency (transferor) must consider the following:

• The capital asset is subject to existing requirements for depreciation, impairment and disclosures.

  Exception: Do not depreciate the capital asset if the arrangement requires the operator to return the asset to the agency (transferor) in its original or an enhanced condition.

• The deferred inflows of resources are reduced and revenue is recognized in a systematic and rational manner over the term of the arrangement, beginning when the underlying PPP asset is placed into operation.
• Improvements made to the underlying PPP asset by the operator during the term of the PPP are capitalized as they are made and are subject to existing requirements for depreciation, impairment and disclosure.
• Installment payments are amortized and reported as interest revenue for the reporting period. Any payments received must be allocated to the accrued interest receivable first and then to the receivable for installment payments.

For more information, examples and USAS entries, see Types & Examples of PPP Contracts.

The agency (transferor) must initially measure the deferred inflow of resources related to the PPP (when the related assets are recognized) as the sum of the following assets:

• The amount of the initial measurement of the receivable for installment payments.
• Plus the PPP payments received from the operator at or before the commencement of the PPP term (for example: an up-front payment associated with a PPP).
• Plus the amounts of for all of the initial measurements of the:
  • Underlying PPP asset
  • Improvements to the underlying PPP asset
  • Receivable for the underlying PPP asset

The agency (transferor) must initially measure the receivable for installment payments at the present value of PPP payments expected to be received during the PPP term, then reduce that amount by any provision for estimated uncollectible amounts. Measurement of the receivable for installment payments must include all of the:

• Fixed payments.
• Variable payments that depend on an index or a rate (such as the Consumer Price Index or a market interest rate) that was initially measured using the index or rate at the commencement of the PPP term.
• Variable payments that are fixed in substance.
• Residual value guarantee payments that are fixed in substance.

Accounting Entries to Record PPP Installment Receivable and a Deferred Inflow of Resources

Accounting effect of above entries:

* The state’s incremental Interest Rates can be used to calculate the present value of the installment receivable.

For variable payments that are based on the future performance of the operator, usage of the underlying PPP asset, or variable factors other than an index or a rate, the agency (transferor) must not include these variable payments in the measurement of the receivable for installment payments. Instead, those variable payments must be recognized as inflows of resources (for example: revenue) in the period to which those payments relate.

For revenue sharing arrangements, the agency (transferor) must recognize only its portion of the shared revenue when earned in accordance with the terms of the arrangement. However, any component of variable payments that is fixed in substance must be included in the measurement of the receivable for installment payments.

Amounts to be received under residual value guarantees (that are not fixed in substance) must be recognized as a receivable for installment payments and an inflow of resources if:

• A guaranteed payment is required (as agreed to by the transferor and the operator).
  — AND —
• The amount can be reasonably estimated.

Amounts to be received for a PPP termination penalty must be recognized as a receivable for installment payments and an inflow of resources (for example: revenue) when that option is exercised.

Any initial direct costs incurred by the agency (transferor) must be reported as outflows of resources (for example, expense) in the period to which those costs relate.

For example, report as outflows of resources for costs that:

• Were incurred to originate a PPP that resulted directly from (and are essential to) that PPP
• Would not have been incurred had the PPP transaction not occurred
• Are directly related to specified activities performed by the agency (transferor) for that PPP

Such costs can include:

• Evaluating the prospective operators’ financial condition
• Evaluating and recording guarantees, collateral and other security arrangements
• Negotiating PPP terms
• Preparing and processing PPP documents
• Closing the transaction