Appendix IV: Accounting Treatment and Reporting in Audited Financial Statements & AIR Page 1 of 5 I ) Accounting Treatment to be applied by each Project of a Housing Provider for the capital expenditures approved and funded by the Service Manager under Capital / Infrastructure Repayable Loan Agreement (Loan) The Journal Entries (JE) with sample amounts for a Housing Project to record in their accounting records in order of events are as follows : JE # General Ledger Accounts of a Housing Project Debit Credit 1 Capital Reserve Fund - Expenses per Loan $ Accounts Payable - Trade $ (To record vendor invoice for work approved under Loan Agreement and signed off by Engineers) 2 Bank $ Capital / Infrastructure Repayable Loan* $ (To record receipt of Loan disbursed by Service Manager (SM) of Region of Peel) 3 Accounts Payable - Trade $ Bank $ (To record payment to vendor for invoice posted in JE 1 above) 4 Capital Improvement Assets* $ Capital Reserve Fund - Revenue $ (At fiscal year end only, to record capitalization of all expenditures in Capital Reserve Fund for the year funded by SM'S Repayable Loan) 5 Bank $ Net Rec'd --> $ A - B Capital / Infrastructure Repayable Loan* HST Rebate per AFS --> $ B Revenue - Subsidies - Region of Peel Approved Mthly Subsidy $ --> $ A Amortization Expense* HST Rebate per AFS --> $ B Accumulated Amortization, Capital Improvement Assets* HST Rebate per AFS --> $ B (To record (1) HST Rebate under Loan Agreement noted in AFS (Audited Financial Statements) as repayment when deducted by SM from the then in-year approved monthly subsidy payout plus (2) respective Amortization of the Capital Improvement Assets per HIP P&P 2010 "Exceptions to GAAP for Audited Financial Statements" at http://www.peelregion.ca/housing/provider/hip/policies/pdf/2010/gaap-deviations.pdf ) 6 Capital / Infrastructure Repayable Loan* $ Principal only--> $ X Loan Interest* Y=$0 when not applicable--> $ Y Bank $ Total Paid --> $ X + Y Amortization Expense* same as $ Principal --> $ X Accumulated Amortization, Capital Improvement Assets* same as $ Principal --> $ X (To record (1) blended repayment of Principal and Interest of the outstanding Loan per Amortization Schedule agreed plus (2) respective Amortization of the Capital Improvement Assets per HIP P&P 2010 "Exceptions to GAAP for Audited Financial Statements" at http://www.peelregion.ca/housing/provider/hip/policies/pdf/2010/gaap-deviations.pdf ) * Note: Amortization Expense and Loan Interest on Capital Improvement Assets must be shown below "Excess (Deficiency) of Revenues over Expenditures" on Statement of Operations Also, outstanding balance of Capital / Infrastructure Repayable Loan must always equal to net Capital Improvement Assets
Appendix IV: Accounting Treatment and Reporting in Audited Financial Statements & AIR Page 2 of 5. II ) Reporting in Housing Provider's Audited Financial Statements is to include the followings: Please note the Service Manager is referred to as "Region of Peel" in this section. Also, Capital Reserve Fund in AIR is same as Reserve Funds and Replacement Reserve referred in Audited Financial Statements. Statement of Balance Sheet / Financial Position: " Capital Improvement Assets " under "Capital Assets" has two components: 1) The Gross amount represents capitalization of all expenditures of the Capital Reserve Fund disbursed to date by Region of Peel under the Capital / Infrastructure Repayable Loan Agreement 2) Accumulated Amortization is the total principal reduction of the loan since repayment begins Note: The net book value of "Capital Improvement Assets " always equals to the current principal balance of the loan owed to Region of Peel "Capital / Infrastructure Repayable Loan " represents the current principal balance owed to Region of Peel under the Capital / Infrastructure Repayable Loan Agreement and consists of two components: 1) The Gross amount represents total disbursement of the loan received to date from Region of Peel 2) Repayment To-date is the total principal reduction of the loan since repayment begins Note: The net total of "Capital / Infrastructure Repayable Loan" always equals to the net book value of the "Capital Improvement Assets" Statement of Operations: If loan repayment(s) occurred during the reporting fiscal year, Amortization Expense of "Capital Improvement Assets" of equal amount to the reduction of principal in the Capital / Infrastructure Repayable Loan is to be reported below the line for "Excess (Deficiency) of Revenues over Expenditures " followed by reporting of respective Loan Interest. Note: Amortization Expense and Loan Interest must be captured as described. Statement of Replacement Reserve: 1)New line for addition of the in-year disbursement received under Capital / Infrastructure Repayable Loan Agreement 2)New line for subtraction of the capitalization of the in-year expenditure transferred to the Gross amount of "Capital Improvement Assets" Note: Net total for items 1 and 2 must be $0 Statement of Cash Flows: Financing Activities Add: Proceed of Capital / Infrastructure Repayable Loan received from Region of Peel Deduct: Principal portion of Capital / Infrastructure Repayable Loan repaid to Region of Peel Investing Activities Add: Capital Expenditure of Replacement Reserve incurred and funded by Loan from Region of Peel Deduct: Year End Capitalization of Capital Expenditure of Replacement Reserve incurred under Loan from Region of Peel Note: Net must be $0 Notes to Audited Financial Statements: 1) "Capital Improvement Assets" is added as a separate group under Capital Assets noting it is funded by Capital / Infrastructure Repayable Loan from Region of Peel with breakdown by nature of cost and amount. Amortization is recorded when repayment occurs. Accumulated Amortization equals total principal reduction paid to date to Region of Peel. Net book value of "Capital Improvement Assets" always equals current principal balance of "Capital / Infrastructure Repayable Loan" 2) "Capital / Infrastructure Repayable Loan" under Region of Peel's Social Housing Capital Maintenance Strategy payable to Region of Peel with terms and conditions and the followings: i) Loan amount and effective dates per Loan Agreement and interest rate when available ii) Total Disbursement received to-date iii) Total Capital Expenditure incurred to-date iv) Details of Repayments made with forecast on next five years v) Annually, Auditor notes amount of HST rebated by CRA for Capital Expenditures funded under Loan which will then be applied as Loan Repayment, in accordance with the Loan Agreement, either a) against the then net payout of approved subsidy and/or year end settlement payable by Region of Peel until fully recovered; or b) payable by cheque to Region of Peel for the full amount in the event of no ongoing subsidy entitlement.
Page 3 of 5 Appendix IV: Accounting Treatment and Reporting in Audited Financial Statements & AIR III ) Reporting in Housing Provider's Annual Information Return (AIR) Reporting of the Net effect of the above sample Journal Entries on Annual Information Return (AIR) at the current fiscal year end: MMAH AIR Page # MMAH AIR Line # Section Heading Line Description Information to Provide $ Amount to Report A3 Statement of Financial Position (Corporate Balance Sheet) A3 329 ASSETS Other programs (describe) Cap Imp Assets by SM Loan $ A3 370 LIABILITIES Other loans (describe) SM Loan to L 329-Cap Imp Assets $ (Note: L 329 should equal to L 370. If not, accrual should be made for outstanding Loan receivable due from SM) A6 Capital Reserve Fund (Housing) A6 656 REVENUE Other In-yr Capital Repayable Loan fr SM $ A6 683 EXPENSES Cap Exp of in-yr Loan: Windows, Flooring $ (Note: L 656 should equal to L 683. If not, accrual should be made for outstanding Loan receivable due from SM)
Appendix IV: Accounting Treatment and Reporting in Audited Financial Statements and AIR III) Reporting in Housing Provider's Annual Inforation Return (AIR) Page 4 of 5 Social Housing Annual Information Return Year end: December 31, 2012 Housing Provider Statement of Financial Position (Corporate Balance Sheet) Page A3 ASSETS Cash and investments - capital reserve fund Balance Sheet Notes & Details - A3S 310 700,000 -other (describe) Cash 312 200,000 Subsidies receivable from the service manager 320 Accounts receivable-residential tenants Balance Sheet Notes & Details - A3S 321 650 Accounts receivable-other (describe) HST & Laundry 322 1,500 Capital Assets (at cost): Shelter - devolved prior federal and provincial projects 325 950,000 Non-shelter - devolved prior federal and provincial projects 327 Sector support devolved prior co-ops only 328 Other programs (describe) Cap Imp Assets by SM Loan 329 Total Lines 325 to 329 330 1,100,000 Subsidies repayable to the service manager 360 Mortgage loans 368 300,000 Other loans (describe) SM Loan to L 329-Cap Imp Assets 370 Other liabilities (describe) A/P, Deposits 375 9,500 SURPLUS Contributed surplus 380 Capital reserve fund housing 384 700,000 Other reserves (describe) 386 Accumulated surplus/(deficit) Balance Sheet Notes & Details - A3S 390 195,650 TOTAL LIABILITIES AND SURPLUS Lines 360 to 390 395 1,355,150 MMAH 10/12 Notes: L 329 to report outstanding amount of Capital Improvement Assets funded by SM's Additional Subsidy Loan L 370 to report outstanding amount of the Additional Subsidy Loan payable to SM-Region of Peel. L 329 should equal to L 370. If not, discrepancy represents timing difference.
Appendix IV: Accounting Treatment and Reporting in Audited Financial Statements and AIR III) Reporting in Housing Provider's Annual Inforation Return (AIR) Page 5 of 5 Social Housing Annual Information Return Year end: December 31, 2012 Capital Reserve Fund (Housing) Housing Provider Page A6 Provincial Section 95 Program Reformed MNP Name Total BALANCE, BEGINNING OF YEAR Previous year's line 690 651 762,288 762,288 Revenue Mandatory transfer from operations Line 547 /1547 652 52,284 0 52,284 Investment income/(loss) 654 18,850 18,850 Other Transfer to/from reserve, per Region of Peel 655 25,000 25,000 Other In-yr Capital Repayable Loan fr SM 656 Total Lines 652 to 655 660 1,008,422 0 0 1,008,422 Expenses (by item or category) Cap Exp of in-yr Loan: Windows, Flooring 680 0 681 0 682 0 683 Total expenses Lines 671 to 683 685 308,422 0 0 308,422 BALANCE, END OF YEAR Lines 651 + 660-685 690 700,000 0 0 700,000 ASSETS, END OF YEAR Cash and investments Line 310 695 700,000 700,000 DIFFERENCE Under (Over) Funded Lines 690-695 699 0 0 0 0 Instructions: If the difference on line 699 is greater than $1,000, provide an explanation for the difference and the corporation's plan to bring the fund into balance. Notes: L 656 to report amount of Repayable Capital Loan received from Service Manager in the reporting fiscal year L 683 to report Capital Expenditure with amount funded by Loan reported on L 656. L 656 should equal to L 683. If not, discrepancy represents timing difference. MMAH 10/12