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CHARLES HOUSE ASSOCIATION <br />Notes to Financial Statements <br />Property and Equipment (Continued) <br />Receivable and Revenue Recognition <br />Expenditures for repairs and maintenance are charged to expense as incurred.The cost of major <br />renewals and betterments are capitalized and depreciated over their useful lives.Upon disposition of <br />property and equipment,the related asset and accumulated depreciation accounts are removed and any <br />gain or loss is reflected in the statement of activities for the period. <br />While the Organization technically leases property to eldercare home clients,it has elected the practical <br />expedient that allows for the combination of the lease and the non-lease components into a single <br />component for accounting and disclosure purposes.Therefore,these arrangements are accounted for <br />under the dictates of Topic 606 (rather than the accounting standards that typically apply to leases of <br />property). <br />The Organization evaluates each service deliverable contracted with the client to determine whether it <br />represents promises to transfer distinct services under Topic 606.These are referred to as performance <br />obligations.One or more service deliverables often represent a single performance obligation.This <br />evaluation requires significant judgment and the impact of combining or separating performance <br />obligations may change the time over which revenue from the contract is recognized. <br />Revenues are recognized as performance obligations are satisfied.The Organization determines the <br />transaction price based on standard charges for goods and services provided,reduced by contractual <br />adjustments provided to third-party payers and discounts provided to uninsured patients in accordance <br />with the Organization's policies. <br />The Organization's contracts for program service fees are single performance obligations that are <br />satisfied over time,so the resulting income is recognized monthly for financial reporting purposes. <br />The lengths of the arrangements with clients vary up to a maximum of twelve months. <br />The viability of the Organization's program service fees is dependent on 1)the strength of the overall <br />economy in Chapel Hill,North Carolina and the general vicinity,(2)the Organization's ability to <br />collect on its contracts,and (3)the ability of clients to congregate with one another and the staff of the <br />Organization. <br />NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) <br />Contributions are recognized when the donor makes a promise to give the Organization that is,in <br />substance, unconditional. <br />Donor-restricted support is reported as an increase in net assets without donor restrictions if the <br />restrictions expire in the year in which the support is recognized.All other donor-restricted <br />contributions are reported as increases in net assets with donor restrictions.When a restriction expires <br />(that is,when a stipulated time restriction ends or purpose restriction is accomplished),net assets are <br />reclassified and reported in the statement of activities as net assets released from restrictions. <br />The Organization uses the allowance method to determine uncollectible receivables.The allowance is <br />based on prior years'experience and management's analysis of specific promises made.No allowance <br />was considered necessary for the year presented. <br />The Organization considers a contract with a client to exist when there is approval and commitment <br />from the Organization and the client,the rights of the parties and payment terms are identified,the <br />contract has commercial substance, and the collectability of consideration is probable. <br /> <br />Page 10 <br />Docusign Envelope ID: FE6E03E9-3378-4BE8-B2E5-0623619296B7