Schedule 5.1 - Deferred Revenue

Background and treatment under PSAB

Many of the current accountability and compliance mechanisms of the funding and other regulations require school boards to set aside unspent allocations until they are spent on their intended purpose. Additionally, sometimes third parties impose a restriction on how amounts can be spent. Under PSAB, these externally restricted amounts are reported as deferred revenue (a liability) until the restriction is fulfilled (Section 3100.07 - 3100.13 of the PSA Handbook). “External restrictions are stipulations imposed by an agreement with an external party, or through legislation of another government, that specify the purpose or purposes for which resources are to be used.” (Section 3100.04).

This schedule provides the information required to report on deferred revenue set up by regulation or legislation, as well as third party amounts. It reports the continuity information relating to the balance sheet account called deferred revenue.

This schedule contains a comprehensive list of deferred revenues, under both the operating and capital sections (categorized as legislative grants, other Ministry of Education grants, other provincial grants and third party grants). All deferred revenues should be recorded on this schedule.

• Transfers to deferred revenue are the amounts put into the deferred revenue liability account (column 2) and transfers out of deferred revenue are amounts taken out of the deferred revenue liability account (column 4, 5 or 6). The decrease in deferred revenue is the amount recognized as revenue (Schedule 9) in the current year or the amount transferred to DCC (Schedule 5.3) in the year.

• Any earnings on deferred revenue that are required to be used for the same purpose as the initial deferred revenue amount should be recorded in column 3. If earnings are not required to be used for the same purpose as the initial deferred revenue amount, then the earnings should be recorded on Schedule 9 as interest, at item 6.1.

• In the case that the agreement with the organization providing the funding under deferred revenues requires the school board to return any unspent funding to the organization at the end of the period of the agreement, the board can use column 2.1 (Deferred Revenue - Adjustment) to transfer the unspent funding to an account payable to the organization.

• The adjustment column for legislative grants should be used to adjust the deferred revenue balance when a school board receives a prior year grant adjustment to an enveloped amount from the ministry.

TAB: Operating

The chart below provides details on amounts to be recorded on this tab. The “Source of Contributions Received” column indicates where the data that is loaded to column 2 (Contributions Received) on Schedule 5.1 originates; that is, the increases to deferred revenue. The “Transfer to Revenue on Schedule 9 Item #” column indicates where amounts recognized into revenue on Schedule 5.1 will appear on Schedule 9.

Operating Deferred Revenues

Northern Adjustment

Two lines on Schedule 5.1 are related to Northern Adjustment funding. Item 1.2 applies only to cooperative lead boards and item 4.9 applies only to recipient boards.

• For item 1.2 (Special Education - Northern Adjustment Envelope), column 2 (Contributions Received) equals the total Northern Adjustment amount from Section 4B, items 1.2 + 1.3; column 6 (Transferred to Revenue) is the sum of the cooperative lead board’s own eligible northern adjustment expenses and the amount transferred to recipient boards (Data Form A2 Special Education, items 4.3 + 4.8).

• For item 4.9 (Northern Adjustment - Transferred from Other Boards), columns 2 (Contributions Received) and 6 (Transferred to Revenue) both equal the “Enveloping Transfer from Other Boards” item reported on Data Form A2 Special Education, item 4.5. This is because any unspent amounts must be returned to the cooperative lead board at year end.

Responsive Education Programs (REP) and Funding for External Partners (FEP)

School boards will report the opening balance of REP and FEP grants from previous years, earnings, and amount to be transferred to revenues related to operating REP and FEP funding on this line. In the case of REP/FEP spent on eligible capital expenditures for minor tangible capital assets (mTCA) according to the transfer payment agreement, the grant should be reported on Schedule 5.1 Capital, item 11.1, so that the funding can be transferred to DCC.

TAB: Capital

The chart below provides details on amounts to be recorded on this tab. The “Source of Contributions Received” column indicates where the data that is loaded to column 2 (Contributions Received) on Schedule 5.1 originates; that is, the increases to deferred revenue. The “Transfer to Revenue on Schedule 9 Item #” column indicates where amounts recognized into revenue on Schedule 5.1 will appear on Schedule 9. Amounts can also be transferred to DCC, which is explained in Note 1 in the table below.

Capital Deferred Revenues (Note 1)

For capital deferred revenues, amounts will be transferred to revenue for one of the following reasons:

• The spending does not meet the capitalization threshold; therefore, the amount is an operating expense.

• The spending was on land or land improvements with infinite lives (a non-depreciable asset), which does not meet the criteria to be recorded in deferred capital contributions (DCC). In this case, the revenue will be tracked on Schedule 5.6 Revenues Recognized for Land Continuity.

• The funding was used for ARO abatement, i.e., to reduce an existing ARO liability. In this case, the amount transferred to revenue will have a corresponding negative value recorded on Schedule 5.7, column 8 (ARO Liability - Abatement). Any revenues used for ARO abatement are excluded from the calculation of balanced budget compliance.

Transfers to Revenue versus DCC

The schedule contains two columns for amounts to be transferred out of deferred revenue and into deferred capital contributions (DCC). Due to the implementation of DCC, capital deferred revenues that have been used to purchase depreciable assets will be transferred to DCC. Deferred revenues used to purchase non-depreciable capital assets, i.e. land, will be transferred to revenue. When deferred revenue is used for its intended purpose and depreciable assets are not purchased, the amount will be transferred to revenue.

Column 4 is used to transfer amounts to DCC related to prior year expenditures and column 5 is used to transfer amounts to DCC related to current year expenditures. These columns are only open in the capital section, since transfers to DCC are not applicable for operating amounts.

For column 5, school boards will transfer deferred revenue to DCC based on the usage of the deferred revenue in the current year. The amount recorded in column 5 will coincide with the usage of deferred revenue that is entered on Schedule 3A (Capital Grants Receivable / Deferred Revenues). Based on the expenditures reported and available deferred revenue on Schedule 3A, the deferred revenue usage is calculated and populated into Schedule 5.1, column 5 for all rows that have a corresponding column on Schedule 3A.

For the capital deferred revenue rows that do not have a designated column on Schedule 3A, the amounts entered on Schedule 5.1 as current year transfers to DCC and revenue will need to be aggregated on Schedules 3 and 3A and entered in column 18 (Other Deferred Revenue).

• On Schedule 5.1, column 5, enter the amount transferred in-year to DCC related to spending on depreciable assets. The total of all the other capital deferred revenues input in this column should equal the amount on Schedule 3A, column 18, item 3.2. This is enforced through warning message Warning_SC3A_4.

• Similarly, Schedule 5.1, column 6 (the amount transferred in-year to revenue) for other capital deferred revenue should include amounts spent on land and ARO abatement. The total amount entered in column 6 should be greater than or equal to the value on Schedule 3A, column 18, items 3.1 + 1.3.2 + 1.3.3. This is enforced through warning message Warning_SC3A_3.

Column 4 is for school boards to transfer amounts to DCC based on prior year eligible capital expenditures. In the current year, a school board may receive a capital contribution. For example, it may have received Proceeds of Disposition, which must be recorded in deferred revenue until the amount is spent on an allowable purchase (recorded in column 2 of Schedule 5.1). The school board, however, already recorded the capital expenditures last year, in anticipation of receiving the POD. Therefore, the board already made an eligible capital expenditure in the prior year. That means that it has already met the criteria of the capital deferred revenue based on its prior year spending. Because the criteria have been met, the amount can be transferred to DCC using column 4.

The TCA balance represents all of the past capital expenditures and DCC represents all of the past capital contributions. The TCA less the DCC represents the portion of the capital expenditures that have not had a corresponding capital contribution. Therefore, the maximum amount that a board can enter in column 4 is the TCA balance less the DCC balance. This is enforced through the error message Error_SC5.1_3.

School Renewal

Since 2014-15, School Renewal funding for school renewal operating expenses in a school year is limited to the average of the School Renewal expenses spent in the period from 2010-11 to 2012-13 plus 5%. It has been further increased by any unspent amount from the School Renewal Investment Maintenance table amount from 2015-16 to 2018-19.

To the extent that a school board has amortization greater than DCC revenue in the year, attributable to spending on school renewal-eligible assets, school boards may recognize the school renewal allocation in revenue up to the amount of DCC revenue shortfall. This is accomplished by entering a value on Data Form A2 School Renewal, item 5.4. For example, assume a school board has amortization expense in year of $1,000,000 and DCC revenue of $700,000, and the shortfall of $300,000 is due to spending on assets that are eligible under the School Renewal allocation. In this case, the school board could recognize $300,000 of their School Renewal deferred revenue in revenue. If the shortfall of $300,000 was not due to spending on assets eligible for School Renewal (e.g., for an admin building), the school board would not be able to recognize an amount in revenue.

Proceeds of Disposition

The Proceeds of Disposition (POD) policy was revised in Memorandum 2015: B13, which requires school boards to use POD on expenditures according to the School Condition Improvement expenditures policy. School boards are required to seek Minister approval for exempted expenditures that don’t fit the SCI expenditures requirement.

• Item 13.1 (Proceeds of Disposition - Minister Exemptions): report POD transactions related to projects that have received a Minister exemption for use on non-SCI type expenditures.

• Item 13.2 (Proceeds of Disposition - Other): report transactions related to POD that is permitted to be spent on administrative sites. Per O. Reg. 193/10 (Restricted Purpose Revenues), these would be proceeds of disposition from sites used for administrative purposes before January 1, 1998.

• Item 13.3 (Proceeds of Disposition - Regular): report transactions related to SCI-type expenditures using POD.

The gain and prior capital contributions will be transferred to deferred revenue on disposal of real property. Note that any insurance proceeds on capital appurtenances would be recorded in proceeds of disposition per Ontario Regulation 193/10.

For continuity, the POD opening balances (col. 1) at items 13.1, 13.2, and 13.3 should agree with the prior year’s closing balances, unless the school board expects a material change from the prior year balance.

See the Fall 2011 Training Session slides for the journal entries supporting the proceeds of disposition transactions.

For Proceeds of Disposition (POD), there is a one-to-one mapping of the POD items between the lines on Schedule 5.1 and the columns on Schedule 3A.

• On Schedule 5.1, during the Estimates and Revised Estimates cycles, column 5 (the amount transferred to DCC related to current year spending on depreciable assets) of all three POD lines is loaded from item 3.2 (application of deferred revenue, non-land) of the corresponding columns 17 to 17.2 from Schedule 3A.

• Column 6 (the amount transferred in-year to revenue) of the Schedule 5.1 POD-Exempted and POD-Other lines is an entered cell in the Estimates and Revised Estimates cycles, where school boards can report eligible land expenditures for current and prior years as well as eligible operating expenses and ARO abatement spending.

• POD-Regular funding is not allowed to be spent on non-depreciable assets, so any amounts in column 6 of this line would relate to ARO abatement spending; in the Estimates and Revised Estimates cycles, this value is loaded from Schedule 3A, item 1.3.2, column 17.

• In the Financial Statements cycle, the data points for all columns of the POD lines are loaded from Appendix O1 instead of being entered or calculated based on Schedule 3A.

Assets Held for Sale

When a tangible capital asset is put up for sale, and it meets the criteria for a financial asset per PS 1201.055, it becomes reclassified as an asset held for sale (AHFS). Along with this reclassification, the DCC will also be reclassified as deferred revenue. This is because the TCA ceases to be amortized; therefore, the DCC must also stop being amortized. A sample journal entry is shown below:

Dr:	Financial Asset/AHFS		xx
  Cr:	Net book value of TCA		  xx

Dr:	DCC				        yy
  Cr:	Deferred revenue (AHFS)	  yy

See the Fall 2011 Training Session slides for more journal entry scenarios supporting the assets held for sale transactions.

When the TCA is reclassified as an asset held for sale, the asset is not yet sold. Therefore, the amount transferred to deferred revenue is not yet considered a proceed of disposition (POD). It would be incorrect to record this deferred revenue as POD since it would artificially inflate the amount of POD available for reinvestment.

School boards would record the AHFS deferred revenue as a positive value at item 13.4, column 2 on Schedule 5.1.

Once the asset is sold, the deferred revenue would be reclassified from the assets held for sale category to the proceeds of disposition category.

Dr:	Deferred revenue (AHFS)	zz
  Cr:	Deferred revenue (POD)	zz

School boards would record this amount at as a negative value at item 13.4, column 2 on Schedule 5.1, with a corresponding positive entry to item 13.1, 13.2, or 13.3, column 2. In the absence of a Minister’s exemption, the sale of a school building should be reported as corresponding positive amount at item 13.3, column 2 (POD-Regular).

If the asset held for sale was sold at a loss, the deferred revenues will be used to cover the loss by entering the loss amount under the “Transferred to Revenue” column. Please see page 81 of the Fall 2011 Training Session slides for more details.

Education Development Charges

As indicated in Memorandum 2019: B20, amendments to the Education Act and O. Reg. 20/98 (Education Development Charges - General) allow for the application of EDC revenues to support lower-cost alternatives to site acquisition. These alternative projects may include depreciable assets. In addition to reporting transfer to revenue in column 6, school boards may report amounts transferred to DCC in columns 4 and 5. In the Estimates and Revised Estimates cycles, the transfer to DCC related to current year expenditures (column 5) is loaded from Schedule 3A, item 3.2, column 16. In the Financial Statements, all columns related to EDCs are loaded from Appendix D1.

Relationship to other schedules:

• For enveloped Core Ed amounts, column 2 (Contributions Received) is loaded from Data Form A2. Please refer to the “Source of Contributions Received” tables under the Operating and Capital sections above for specific item numbers.

• The amounts loaded in column 2 (Contributions Received) for Minor Tangible Capital Assets (item 10.1) and Interest on Capital Debt (item 10.2) are loaded from Section 1A, items 2.1 and 2.3, respectively.

• In the Financial Statements cycle, the Proceeds of Disposition lines (items 13.1, 13.2, and 13.3) are loaded from Appendix O1.

• The total amount transferred to DCC related to prior year expenditures (item 14, column 4) is added to any amounts from Schedule 3.2 columns 8.2 and 8.3 (additional approved prior years’ non-land capital expenditures), and the total is populated to Schedule 5.3, item 2.3, column 3.

• The total at item 14 in column 4 cannot exceed the opening depreciable TCA net book value (recorded at Schedule 5.3, column 1, item 2.0) less the opening DCC balance (recorded at Schedule 5.3, column 1, item 2.3). This is enforced through an error message (Error_SC5.1_3).

• The deferred revenues transferred to DCC related to current year expenditures from third parties (column 5, item 13 less items 13.1 to 13.4) is forwarded to Schedule 5.3, item 2.4, column 2 and is included as a part of the DCC additions related to third parties.

• The deferred revenues transferred to DCC related to prior year expenditures from third parties (column 4, item 13 less items 13.1 to 13.4) is loaded to Schedule 5.3, item 2.4, column 3 to increase third party DCC related to prior eligible capital expenditures.