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HOA accounting: how should capital purchases be accounted for?

Posted on Tue, Oct 25, 2011 @ 07:28 AM
  
  
  
  
  
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I live in a small condo HOA. Recently, they constructed an addition to the monument signs. It's really ugly and no longer matches the style of the homes. But, that is another story. They spent a sizable amount of money on the addition. Raising a questions about accounting for the new asset. The money spent to complete the project came from surplus dues paid in 2010. The board refused to refund the surplus or lower the dues and carry it over into 2011, to offset the difference. The monument signs were already fully depreciated and not funded by the reserves. Should the addition to the signs be capitalized and depreciated on the books? Does it have to be a funded item in the reserves to be capitalized? If so, what benefits would we see on the taxes for a non-profit whose only source of income is dues, reimbursements, fines, & interest? Are there any negatives for not capitalizing it?

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Comments

It is quite common that condo bylaws contain a clause whicgh restricts the amount ther Board may spend for a capital improvement. Review your bylaws abd then proceed to challenge this unauthorized expenditure should this be the case.
Posted @ Tuesday, October 25, 2011 7:47 AM by Scott
I agree with Scott. My Association's governing documents require homeowner approval for ALL capital additions or improvements, which yours would be classified, and allows the Board authority only to make repairs and replace items that have reached the end of their useful life. Good luck.
Posted @ Tuesday, October 25, 2011 9:19 AM by Lynn
I am a little confused. Why would a non-profit depreciate a monument sign? You can't write the expense off because, I would assume, your association accounting is cash basis. Doesn't your BOD present a yearly budget for operating expenses and reserves that fund capital projects? By saying the monument was purchased from 2010 "surplus dues". Surplus?? Since when is a reserve fund considered surplus? The reserve fund must grow each year to replace capital items that wear out over time. If you don't like the new monument sign you may want to talk to the board about doing something to improve the looks, which will cost more money, or get on a committee that over-sees landscaping in the common areas. BTW, monument signs are very expensive. I'll bet Ramses spent less per citizen builing the pyramids!
Posted @ Tuesday, October 25, 2011 3:02 PM by Renee
My assn. has spent a lot of $$$ 
 
over the past 2 years updating our monuments -- $4,000 - $7,000 per monument. (You did not mention the amount of the expense.) These expenditures were not capitalized but rather expensed. The IRS allows capital assets, up to a certain amount -- not sure what the amount is,to be expensed.  
 
Posted @ Tuesday, October 25, 2011 4:57 PM by mary
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