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Advocat

June 8, 2005

Mr. Larry Spirgel, Assistant Director

United States Securities and Exchange Commission

Division of Corporation Finance, Mail Stop 0407

450 Fifth Street, N.W.

Washington, D.C. 20549

          RE:

    Advocat Inc.

    Form 10-K for the fiscal year ended December 31, 2004

    Filed March 29, 2005

    File No. 001-12996

Dear Mr. Spirgel:

This is written in response
to the request made during our telephone conference on May 26, 2005, to
provide some illustration of the accounting followed by Advocat Inc. with regard to capital
expenditures required by the master lease with Omega. Reference is made to our letter to you dated
May 2, 2005.

The Omega Master Lease requires the Company to fund capital expenditures related to the leased
facilities totaling $1,000,000 during the first two years of the initial lease term. The Company
is also required to fund annual capital expenditures equal to $325 per licensed bed over the
initial lease term (annual required capital expenditures of $994,000), with annual increases in the
per bed requirement based on increases in the CPI. Total required minimum capital expenditures
over the initial lease term are $10,940,000. For the reasons noted in our original response, the
Company has consistently accounted for the cost of the required improvements on the same basis as
the accounting treatment described in SFAS 13 for minimum rentals, and has charged the committed
capital improvements to expense straight-line over the lease term.

The following illustrates the Company’s accounting for property under this requirement.

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At the time of the restructuring of the lease, the Company’s net fixed assets recorded in
connection with the leased properties totaled $6,348,000. Excluding computer equipment and other
short-lived assets reduces this total to $4,994,000, leaving a group of leasehold improvements to
be depreciated over the lease term, 10 years. The required minimum capital expenditures at lease
inception were $10,940,000, as described in our earlier letter. Together, these amounts total to a
total asset base of $15,934,000 to be depreciated over the lease term.

ILLUSTRATION FOR INITIAL LEASE YEAR

Assume that in lease year one, assets totaling $1,000,000 were purchased, and that all such assets
related to leasehold improvements with a 10 year life. The Company would record the following
journal entries:

     1. Record the purchase of assets –

    Leasehold Improvements

    $
    1,000,000

              Cash

    $1,000,000

     2. Record “normal” depreciation on assets actually purchased or already in service–

    Depreciation expense

    $
    100,000

              Accumulated Depreciation

    $100,000

($1,000,000 cost, 10 year life, and assumes a full year’s expense for purposes of
illustration)

    Depreciation expense

    $
    499,400

              Accumulated Depreciation

    $499,400

(existing assets totaled $4,994,000, and for purposes of illustration, a life of 10
years is assumed)

Memo: total depreciation recorded = $599,400

These depreciation amounts are simplified for purposes of the illustration. The
actual depreciation recorded by the Company is based on amounts determined by its
fixed asset system and takes into consideration actual useful life (to the extent
less than lease term), date purchased, etc.

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     3. Record “additional” depreciation for required capital expenditures-

    Asset base to depreciate over 10 years

    $15,934,000

    (existing assets plus required future

    capital expenditures – see above)

    Lease term

    10 years

    Annual depreciation required

    $1,593,400

Less depreciation recorded on assets in service

    599,400

    Difference = additional depreciation

    $994,000

    Depreciation expense

    $
    994,000

              Reserve for depreciation of
required expenditures

    994,000

The net book value of leasehold improvements at the end of the first lease year is computed below:

    Net book value at start of year

    $
    4,994,000

    Assets purchased

    1,000,000

    Depreciation recorded

    (1,593,400
    )

Net book value of assets at year end

    $
    4,400,600

IMPACTS IN SUBSEQUENT LEASE YEARS

Note that the Company records depreciation over the estimated useful life of the property, not to
exceed the lease term for assets in use at these leased properties. To date, the Company has not
assumed renewal of the lease at the expiration of the initial lease term, and each year, reduces
the maximum useful life applicable to assets in use at these leased facilities. During the second
lease year, the maximum life for assets purchased would be nine years, decreasing to 8 years in the
third lease year, and so forth.

The effect of these decreasing useful lives is that all assets will be fully depreciated at the end
of the lease term. At some point in the last half of the lease, the effects of these reduced
lives will increase depreciation expense on assets in service to the point where the recorded
depreciation expense begins to exceed the straight-line benchmark of $1,593,400 in the illustration
above. For example, assume that depreciation expense on assets purchased and placed into service,
including assets on hand at the start of the lease, totaled $2,000,000. The entries required to
record depreciation expense would be as follows:

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     1. Record depreciation on assets in service –

    Depreciation expense

    $
    2,000,000

              Accumulated depreciation

    $2,000,000

     2. Record adjustment for required capital expenditures –

    Required annual depreciation expense

    $
    1,593,400

    Less depreciation recorded

    (2,000,000)

    Adjustment

    (406,600)

    Reserve for depreciation of
required expenditures

    $
    406,600

              Depreciation expense

    $406,600

Such reversals of depreciation expense would continue until “additional depreciation” recorded in
early years had been completely reversed. At that point, the Reserve for depreciation of required
expenditures left on the books would be reduced to zero, accumulated depreciation would represent
the required depreciation for assets actually in service, and such adjustments to depreciation
would no longer be necessary.

In practice, the Company makes one additional adjustment to this computation to take into
consideration the effects of depreciable assets with lives shorter than the remaining lease term,
resulting in recording depreciation over the shorter of useful life or remaining lease term.
Purchases of short-lived equipment, such as computer equipment, have the effect of increasing the
“annual depreciation requirement” above the basic level of $1,593,400 illustrated above.

The spending requirement is measured on a cumulative basis, and any “overspending” in a current
period counts toward the requirements in future periods. The Company does not consider any excess
spending in its computation of depreciation adjustments. Spending above the cumulative minimum
requirement will lead to additional depreciation expense, with assets being depreciated over the
shorter of useful life or remaining lease term.

In future periods, the Company will continue to follow this approach. Should the Company be in a
position to exercise its renewal option, it will be necessary to adjust depreciation lives to
include the renewal period. This will also introduce a new period of required capital expenditures
for the renewal, and trigger a new computation of depreciation expense.

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Advocat is committed to fully complying with the SEC disclosure requirements. After you have had
the opportunity to review this letter, please call me or William R. Council, Chief Executive
Officer at (615) 771-7575 to confirm that the responses in this letter satisfactorily address your
comments or to raise any additional questions or comments you may have.

Sincerely,

/s/ L. Glynn Riddle

L. Glynn Riddle

Chief Financial Officer

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