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amortization because the evidence in the record indicates that
Village West offered a nursing care arrangement where the monthly
service fees for the years in issue were intended to cover all
expenses related to AFVW residents. Neither the residence
agreement nor the financial information submitted by the parties
indicates whether the entrance fees or monthly service fees are
allocated to specific costs or what that allocation is. Thus,
the denominator in this case should be based on the total costs
of the CCRC, which necessarily includes costs for these two
items. It is also logical to include interest expense and
depreciation and amortization costs related to medical facilities
when other expenditures relating to the operation of those
facilities (e.g., utilities, food services, health services) are
included. Therefore, we assume for purposes of this case that
the monthly service fees are applied equally to all expenses,
including interest expense and depreciation and amortization.
Accordingly, we agree with respondent and Mr. Powell that, in
this case, interest expense and depreciation and amortization
should be included in both the numerator and denominator.35
35The SCU was placed in service in June 1997 and started
operation at that time. Accordingly, in calculating the interest
expense allocable to the SCU for 1997 we include half the amount
that would have been allocable had the facility been in operation
for the entire year.
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