Dialogue
FROM: MAY-JUN 2004 ISSUE
Seeking Input
As a property management accountant for the last six years, nothing has proven more vexing than the myriad of practices that seem to exist for contingency reserves. Strata corporations must have a contingency reserve fund (CRF) to pay for expenses that occur occasionally.
In its simplest form, a representation of the CRF on the balance sheet may be as follows:
| Assets |
|
| Cash — operating |
20,000 |
| Cash — CRF |
50,000 |
| Total Assets |
70,000 |
| |
|
| Liabilities & Equity |
|
| Contingency Reserve |
50,000 |
| Operating Fund |
20,000 |
| Total L & E |
70,000 |
Expenditures from the CRF must be approved by a three-quarter vote at an annual or special meeting, and be consistent with the purpose of the CRF. An unapproved expenditure will only be permitted to ensure safety. However, the CRF can be lent to the operating fund to cover temporary shortages resulting from expenses payable before contributions to the operating fund have been collected.
This can cause large deficits in the CRF, and that is when the reporting and presentations can get ugly. For example, suppose damage occurs that will cost $30,000 to rectify, but the operating account only has $20,000. The strata decides it is necessary to leave $5,000 in the operating account for regular expenditures like the caretaker's salary, so $15,000 will have to be borrowed from the CRF. The balance sheet might look like Presentation A, B, or C:
| PRESENTATION A |
|
| |
|
| Assets |
|
| Cash — operating |
5,000 |
| Cash — CRF |
35,000 |
| Total Assets |
40,000 |
| |
|
| Liabilities & Equity |
|
| |
|
| Current Liabilities |
|
| Inter-fund loan |
15,000 |
| |
|
| Equity |
|
| Contingency Reserve |
35,000 |
| Operating Fund |
–10,000 |
| Total L & E |
40,000 |
| |
|
| PRESENTATION B |
|
| |
|
| Assets |
|
| Cash — operating |
5,000 |
| Cash — CRF |
35,000 |
| Total Assets |
40,000 |
| |
|
| Liabilities & Equity |
|
| |
|
| Equity |
|
| Contingency Reserve |
50,000 |
| Operating Fund |
–10,000 |
| Total L & E |
40,000 |
| |
|
| PRESENTATION C |
|
| |
|
| Assets |
|
| Cash — operating |
5,000 |
| Cash — CRF |
35,000 |
| Total Assets |
40,000 |
| |
|
| Liabilities & Equity |
|
| |
|
| Current Liabilities |
|
| Inter-fund loan (CRF) |
15,000 |
| |
|
| Equity |
|
| Contingency Reserve |
50,000 |
| CRF Expensed |
–15,000 |
| Operating Fund |
–10,000 |
| Total L & E |
40,000 |
Proponents of B and C argue that the contingency reserve is still technically $50,000 and should be shown as such. I, however, disagree and find it misleading. What do your readers think? [Send responses to edit@cga-canada.org]
George Wilson-Tagoe, B.Sc., CGA
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Soft Skills
I was pleased to read Merge Gupta-Sunderji's The Silent Communicatorin the March-April 2004 issue. While it is important to remain current with our profession, some articles dealing with human relationships in the workplace are a breath of fresh air. I hope that CGA Magazinewill continue to publish such articles.
Charles-Aimé Bureau, CGA
President of the Beauce/Amiante/Etchemins chapter
Ordre des CGA du Québec
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