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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Specialized Accounting

Availability Payment Arrangements

Introduction

GASB 94 provides guidance for accounting and financial reporting for Availability Payment Arrangements (APA). An APA is an arrangement in which the state agency (transferor) compensates the operator for activities that may include designing, constructing, financing or maintaining and operating an underlying nonfinancial asset for a period of time in an exchange or exchange-like transaction. The payments by the state agency (transferor) are based entirely on the asset’s availability for use rather than on tolls, fees (or similar revenues) or other measures of demand. Availability for use may be based on specified criteria (such as the physical condition of the asset, construction milestones or the achievement of certain availability measures).

For APA contracts, the state agency procures a capital asset or service — rather than receiving compensation to allow another entity to provide public services. APA contracts are like Public-Public Partnerships (PPP) except that the state agency retains demand risk and responsibility for fee collection associated with the use of the underlying asset. Instead of the state agency (transferor) conveying the right and obligation to the operator to provide public services using the underlying asset and being compensated from third parties, the state agency (transferor) is compensating the operator for either providing an asset to the agency or performing services on behalf of the state agency.

Design, Construct and Finance

APA contracts that relate to designing, constructing and financing a nonfinancial asset in which ownership of the asset transfers by the end of the contract must be accounted for by the state agency (transferor) as a financed purchase of the underlying nonfinancial asset. Such APA contracts would meet the definition of debt for disclosure purposes in GASB Statement No. 88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements. For APA contracts involving multiple underlying nonfinancial assets and those assets have different terms, the state agency (transferor) must account for each as a separate component. In addition, the agency (transferor) must account for each nonfinancial asset as a separate component if the assets are in different major classes of asset. Agencies must account for APAs in the LTLN web application and disclosed in Note 5 – Long-Term Liabilities.

Operation and Maintenance

An APA related to operating or maintaining a nonfinancial asset must be reported by the state agency as an outflow of resources, expensed, in the reporting period to which the payments relate.

GASB 94 requires state agencies that engaged in an APA containing multiple components to recognize each component as a separate arrangement. If a state agency enters into an APA that contains both a component related to the design, construction or financing of a nonfinancial asset and a component related to providing services for the operation or maintenance of a nonfinancial asset, the state agency must account for those components as separate contracts.

Allocation of Multiple Components

To allocate the contract price to the different components, the state agency must use any prices for individual components that are included in the contract if the price allocation does not appear to be unreasonable based on the terms of the contract and professional judgment. This is accomplished by maximizing the use of observable information (for example, using readily available observable stand-alone prices). Stand-alone prices are those that would be paid or received if the:

  • Same or similar nonfinancial assets were acquired individually
  • Same or similar services for the operation or maintenance of the nonfinancial assets were contracted individually

Some contracts provide discounts for including multiple assets or asset and service components together in one contract. Those discounts may be considered when determining whether individual component prices do not appear to be unreasonable. For example, if the individual component prices are discounted by the same percentage as normal market prices, the discount included in those component prices would not appear to be unreasonable.

If a contract does not include prices for individual components, an agency must use professional judgment to determine its best estimate for allocating the contract price to those components, maximizing the use of observable information. If it is not practicable to determine a best estimate for price allocation for some or all components in the contract, the state agency must account for those components as a single contract.

If multiple components are accounted for as a single contract, the accounting for that APA must be based on the primary component of the contract.

Sample — Design, Build, Finance and Operate a Bridge

On Jan. 2, 20X0, the Texas Department of Transportation (TxDOT) (the transferor), enters an arrangement with a corporation to design, build and finance the construction of a bridge (the Kotzman Bridge). The corporation will collect all tolls for the bridge for 40 years and remits those tolls to TxDOT. TxDOT pays the corporation $10 million at the start of the project and another $10 million on the date the bridge is placed into service. Additionally, TxDOT pays the corporation $2 million annually for each of the 40 years the corporation will operate the bridge (to compensate the corporation for designing, building and financing the bridge) beginning in the reporting period in which the bridge is placed into service. TxDOT also remits $100,000 per month during the 40 years to compensate the corporation for collecting the tolls. The bridge is placed into service on Oct. 31, 20X1. After payment of the $10 million for completion of the project, the present value of future payments to the corporation are $40 million.

Accounting at the Commencement of the APA

TxDOT must report an asset for the initial payment of $10 million to the corporation.

Seq No Batch Type Doc Type Eff Date Fin Agy TC AY PCA COBJ Amount R Fund Input GL
To Record Cash Outlay of Initial Payment at the Start of the Project
(1) 4 U XXXXCY XXX 225 CY 99999 7XXX* $10,000,000   XXXX  
To Reclassify Expenditure of the Initial Payment
(2) 5 U XXXXCY XXX 633 CY 99999 7XXX* $10,000,000   XXXX 9999
To Record Initial APA Prepayment
(3) 5 U 0832CY XXX 644 CY 99999 N/A $  10,000,000   XXXX 0430

Accounting effect of above entries:

Debit Credit
(1) To Record Cash Outlay of Initial Payment at the Start of the Project    
  5600 GAAP Expenditure Offset $ 10,000,000  
  0045 Cash in State Treasury   $ 10,000,000
(2) To Reclassify Expenditure of the Initial Payment    
  9999 System Clearing $ 10,000,000  
  5600 GAAP Expenditure Offset   $ 10,000,000
(3) To Record Initial APA Prepayment    
  0430 NC Prepaid Items $  10,000,000  
  9999 System Clearing   $  10,000,000

*For more information on capital asset object codes, see Capital Asset Object Codes.

Accounting in Future Years

  • On the date the Kotzman bridge is placed into service, TxDOT must recognize a capital asset for the bridge in the amount of $60 million. This amount consists of $10 million at the start of the project, $10 million at the date the bridge is placed into service, $40 million present value of future payments.
  • TxDOT must apply existing capital asset guidance (including depreciation) to the bridge.
  • TxDOT also must recognize a liability in the amount of $40 million to the corporation for the present value of the future annual payments to the corporation.

TxDOT must record the current and noncurrent portions of the APA installment payments each year. Each payment must record the principal and interest expenditures which totals the APA obligation payment. The recorded amounts are based on the Amortization Schedule Example table shown at the end of this section.

Business-Type Activities

Seq No Batch Type Doc Type Eff Date Fin Agy TC AY PCA COBJ Amount R Fund Input GL
To Record Cash Outlay of Payment When Bridge is Placed into Service
(1) 4 U XXXXCY XXX 225 CY 99999 7XXX* $10,000,000   XXXX  
To Reclassify Initial APA Prepayment to Expenditure
(2) 5 U XXXXCY XXX 645 CY 99999 7XXX* $10,000,000   XXXX 0430
To Record APA Liability (FT05,15)
(3) 5 U XXXXCY XXX 632 CY 99999 7XXX* $40,000,000   XXXX 1290
To Record Acquisition Value of Tunnel Constructed by the Operator (FT05,15)
(4) 5 U XXXCY XXX 633 CY 99999 03XX** $60,000,000   XXXX XXXX*

Accounting effect of above entries:

Debit Credit
(1) To Record Cash Outlay of Payment When Bridge is Placed into Service    
  5600 GAAP Expenditure Offset $ 10,000,000  
  0045 Cash in State Treasury   $ 10,000,000
(2) To Reclassify Initial APA Prepayment to Expenditure    
  5600 GAAP Expenditure Offset $ 10,000,000  
  0430 NC Prepaid Items   $ 10,000,000
(3) To Record APA Liability    
  5600 GAAP Expenditure Offset $  40,000,000  
  1290 NC APA Obligations   $  40,000,000
(4) To Record Acquisition Value of Tunnel Constructed by the Operator    
  XXXX* General Ledger Account for Capital Asset $  60,000,000  
  5600 GAAP Expenditure Offset   $  60,000,000/td>

* For more information on general ledger accounts for capital assets business-type activities, see Recording Capital Asset Acquisitions.

** For more information on capital asset object codes, see Capital Asset Object Codes.

Government Activities

Seq No Batch Type Doc Type Eff Date Fin Agy TC AY PCA COBJ Amount R Fund Input GL
To Record Cash Outlay of Payment When Bridge is Placed into Service
(1) 4 U XXXXCY XXX 225 CY 99999 7XXX** $10,000,000   XXXX  
To Reclassify Initial APA Prepayment to Expenditure
(2) 5 U XXXXCY XXX 645 CY 99999 7XXX** $10,000,000   XXXX 0430
To Record APA Liability
(3) 5 U XXXXCY XXX 657 CY 99999 7XXX** $40,000,000   XXXX 5600
To Record Acquisition Value of Tunnel Constructed by the Operator (FT05,15)
(4) 5 U XXXXCY XXX 513 CY 99999 7XXX** $60,000,000   XXXX 06XX*

Accounting effect of above entries

Debit Credit
(1) To Record Cash Outlay of Payment When Bridge is Placed into Service    
  5600 GAAP Expenditure Offset $ 10,000,000  
  0045 Cash in State Treasury   $ 10,000,000
(2) To Reclassify Initial APA Prepayment to Expenditure    
  5600 GAAP Expenditure Offset $ 10,000,000  
  0430 NC Prepaid Items   $ 10,000,000
(3) To Record APA Liability    
  5600 GAAP Expenditure Offset $  40,000,000  
  6035 Other Financing Sources   $  40,000,000
(4) Basis Conversion Entry to Record Capital Asset (FT11)    
  06xx* BC Capital General Ledger Account $  60,000,000  
  5650 BC Expenditure Control   $  60,000,000

*For more information on general ledger accounts for capital assets – government-wide activities, see Recording Capital Asset Acquisitions.

**For more information on capital asset object codes, see Capital Asset Object Codes.

Business-Type Activities

Seq No Batch Type Doc Type Eff Date Fin Agy TC AY PCA COBJ Amount R Fund Input GL
To Reclass the APA Installment Payment (FT05, FT15)
(1) 5 U XXXXCY XXX 633 CY 99999 7XXX $2,000,000   XXXX 9999
To Reclass the Interest Portion of APA Payments (FT05, FT15)
(2) 5 U XXXXCY XXX 632 CY 99999 7802 $1,572,000   XXXX 9999
To Reduce the APA Liability by Principal Portion of the Payments (FT05, FT15)
(3) 5 U 0832CY XXX 644 CY 99999 N/A $428,000   XXXX 1290
To Adjust the Accrued Interest Payable (FT05, FT15)
(4) 5 U XXXXCY XXX 645 CY 99999 N/A $XXX.XX   XXXX 1110
To Record the Current Portion of APA Liability, Due Within 1 year (FT05, FT15)
(5) 5 U XXXCY XXX 647 CY 99999 N/A $444,820   XXXX 1190
To Reduce Noncurrent APA Liability by Amount of Current Liability, Due Within 1 year (FT05, FT15)
(6) 5 U XXXXCY XXX 647 CY 99999 N/A $444,820   XXXX 1290

Accounting effect of above entries:

Debit Credit
(1) To Reclass the APA Installment Payment (FT05, FT15)    
  9999 System Clearing $ 2,000,000  
  5600 GAAP Expenditure Offset   $ 2,000,000
(2) To Reclass the Interest Portion of APA Payments (FT05, FT15)    
  5600 GAAP Expenditure Offset $ 1,572,000  
  9999 System Clearing   $ 1,572,000
(3) To Reduce the APA Liability by Principal Portion of the Payments (FT05, FT15)    
  1290 NC APA Obligations $  428,000  
  9999 System Clearing   $  428,000
(4) To Adjust the Accrued Interest Payable (FT05, FT15)    
  9999 System Clearing $  XXX.XX  
  1110 Interest Payable   $  XXX.XX
(5) To Record the Current Portion of APA Liability, Due Within 1 year (FT05, FT15)    
  9999 System Clearing $  444,820  
  1190 CL APA Obligations   $  444,820
(6) To Reduce Noncurrent APA Liability by Amount of Current Liability, Due Within 1 year (FT05, FT15)    
  1290 NC APA Obligations $  444,820  
  9999 System Clearing   $  444,820

Government Activities

Seq No Batch Type Doc Type Eff Date Fin Agy TC AY PCA COBJ Amount R Fund Input GL
To Reclass the APA Installment Payments (FT01, FT02, FT03, FT04)
(1) 5 U XXXXCY XXX 633 CY 99999 7XXX* $2,000,000   XXXX 9999
To Record Debt Service Interest Expenditures (FT01, FT02, FT03, FT04)
(2) 5 U XXXXCY XXX 632 CY 99999 7802 $1,572,000   XXXX 9999
To Record Debt Service Principal Expenditures (FT01, FT02, FT03, FT04)
(3) 5 U 0832CY XXX 632 CY 99999 7339 $428,000   XXXX 9999
To Record Noncurrent APA Liability Addition in Basis Conversion Funds (FT12)
(4) 5 U XXXXCY XXX 516 CY 99999 3893 $40,000,000   XXXX 1790
To Reduce the Reduction in APA Liability and Reclass the Debt Service Principal Expenditures in Basis Conversion Funds (FT12)
(5) 5 U XXXXCY XXX 503 CY 99999 7339 $428,000   XXXX 1790
To Record the Portion of Current APA Liability (Due Within 1 year) in Basis Conversion Funds (FT12)
(6) 5 U XXXXCY XXX 537 CY 99999 N/A $444,820   XXXX 1690
To Reduce Noncurrent APA Liability by Amount of Current Liability (Due Within 1 year) in Basis Conversion Funds (FT12)
(7) 5 U XXXXCY XXX 537 CY 99999 N/A $444,820 R XXXX 1790
To Record the Accrued Interest Payable in Basis Conversion Funds (FT12)
(8) 5 U XXXXCY XXX 503 CY 99999 7802 $XXX.XX   XXXX 1610

Accounting effect of above entries:

Debit Credit
(1) To Reclass the APA Installment Payments (FT01, FT02, FT03, FT04)    
  9999 System Clearing $ 2,000,000  
  5600 GAAP Expenditure Offset   $ 2,000,000
(2) To Record Debt Service Interest Expenditures (FT01, FT02, FT03, FT04)    
  5600 GAAP Expenditure Offset $ 1,572,000  
  9999 System Clearing   $ 1,572,000
(3) To Record Debt Service Principal Expenditures (FT01, FT02, FT03, FT04)    
  5600 GAAP Expenditure Offset $  428,000  
  9999 System Clearing   $  428,000
(4) To Record Noncurrent APA Liability Addition in Basis Conversion Funds (FT12)    
  6135 BC Other Financing Sources $  40,000,000  
  1790 BC NC APA Obligation   $  40,000,000
(5) To Reduce the Reduction in APA Liability and Reclass the Debt Service Principal Expenditures in Basis Conversion Funds (FT12)    
  1790 BC NC APA Obligation $  428,000  
  5650 BC Expenditure Control   $  428,000
(6) To Record the Portion of Current APA Liability (Due Within 1 year) in Basis Conversion Funds (FT12)    
  9992  BC System Clearing $  444,820  
  1690 BC CL APA Obligation   $  444,820
(7) To Reduce Noncurrent APA Liability by Amount of Current Liability (Due Within 1 year) in Basis Conversion Funds (FT12)    
  9992 BC System Clearing $  444,820  
  1790 BC NC APA Obligation   $  444,820
(8) To Record the Accrued Interest Payable in Basis Conversion Funds (FT12)    
  5650 BC Expenditure Control $ XXX.XX  
  1610 BC CL Interest Payable   $  XXX.XX

*For more information on capital asset object codes, see Capital Asset Object Codes.

APA Installment Amortization Schedule at 3.93% Discount Rate

Year Cash Interest Expense Liability Reduction Total Liability ST APA Liability LT APA Liability
Year 0       40,000,000    
Year 1 2,000,000 1,572,000 428,000 39,572,000 444,820 39,127,180
Year 2 2,000,000 1,555,180 444,820 39,127,180 462,302 38,664,878
Year 3 2,000,000 1,537,698 462,302 38,664,878 480,470 38,184,408
Year 4 2,000,000 1,519,530 480,470 38,184,408 499,353 37,685,055
Year 5 2,000,000 1,500,647 499,353 37,685,055 518,977 37,166,078
Year 6 2,000,000 1,481,023 518,977 37,166,078 539,373 36,626,704
Year 7 2,000,000 1,460,627 539,373 36,626,704 560,571 36,066,134
Year 8 2,000,000 1,439,429 560,571 36,066,134 582,601 35,483,533
Year 9 2,000,000 1,417,399 582,601 35,483,533 605,497 34,878,036
Year 10 2,000,000 1,394,503 605,497 34,878,036 629,293 34,248,743
Year 11 2,000,000 1,370,707 629,293 34,248,743 654,024 33,594,718
Year 12 2,000,000 1,345,976 654,024 33,594,718 679,728 32,914,991
Year 13 2,000,000 1,320,272 679,728 32,914,991 706,441 32,208,550
Year 14 2,000,000 1,293,559 706,441 32,208,550 734,204 31,474,346
Year 15 2,000,000 1,265,796 734,204 31,474,346 763,058 30,711,287
Year 16 2,000,000 1,236,942 763,058 30,711,287 793,046 29,918,241
Year 17 2,000,000 1,206,954 793,046 29,918,241 824,213 29,094,028
Year 18 2,000,000 1,175,787 824,213 29,094,028 856,605 28,237,423
Year 19 2,000,000 1,143,395 856,605 28,237,423 890,269 27,347,154
Year 20 2,000,000 1,109,731 890,269 27,347,154 925,257 26,421,897
Year 21 2,000,000 1,074,743 925,257 26,421,897 961,619 25,460,278
Year 22 2,000,000 1,038,381 961,619 25,460,278 999,411 24,460,867
Year 23 2,000,000 1,000,589 999,411 24,460,867 1,038,688 23,422,179
Year 24 2,000,000 961,312 1,038,688 23,422,179 1,079,508 22,342,670
Year 25 2,000,000 920,492 1,079,508 22,342,670 1,121,933 21,220,737
Year 26 2,000,000 878,067 1,121,933 21,220,737 1,166,025 20,054,712
Year 27 2,000,000 833,975 1,166,025 20,054,712 1,211,850 18,842,862
Year 28 2,000,000 788,150 1,211,850 18,842,862 1,259,476 17,583,387
Year 29 2,000,000 740,524 1,259,476 17,583,387 1,308,973 16,274,414
Year 30 2,000,000 691,027 1,308,973 16,274,414 1,360,416 14,913,998
Year 31 2,000,000 639,584 1,360,416 14,913,998 1,413,880 13,500,119
Year 32 2,000,000 586,120 1,413,880 13,500,119 1,469,445 12,030,673
Year 33 2,000,000 530,555 1,469,445 12,030,673 1,527,195 10,503,479
Year 34 2,000,000 472,805 1,527,195 10,503,479 1,587,213 8,916,265
Year 35 2,000,000 412,787 1,587,213 8,916,265 1,649,591 7,266,675
Year 36 2,000,000 350,409 1,649,591 7,266,675 1,714,420 5,552,255
Year 37 2,000,000 285,580 1,714,420 5,552,255 1,781,796 3,770,459
Year 38 2,000,000 218,204 1,781,796 3,770,459 1,851,821 1,918,638
Year 39 2,000,000 148,179 1,851,821 1,918,638 1,918,638 -
Year 40 2,000,000 81,362 1,918,638 - - -
Totals 80,000,000 40,000,000 40,000,000