Maintenance Vehicle Expenses?

In May our association purchased a Kubota maintenance vehicle for approx. $22,000. The purchase expense was coded to a line item in our budget used for operating contingency. I believe that the reasoning was that this vehicle was not planned in the budget so the expense should be covered by the operating contingency. I don't think this is proper.

The vehicle is a capital asset. It should be depreciated. My understanding is that the purchase expense should be coded to an asset account on the balance sheet. None of the purchase cost should appear, as it currently does, on the comparative income statement and the only expense that should appear on our comparative monthly income statement is the monthly depreciation amount (plus any costs to operate, maintain and repair the vehicle).

Anyone here that is an accountant or has experience in this area - does this sound correct?

Also, the board has authorized other expenditures which were not explicitly budget for. These have also been coded to the operating contingency line item. My contention is that no expense should ever be coded to that line item. This line item is a "plug" number in our budget to account for the difference between total income and total operating expenses. Such expenses should be coded to whichever regular line item most closely corresponds to the purpose for the expenditure. If that results in the line item exceeding its budget, the overage is covered by the amounts budgeted as operating contingency.

Does that sound right?

Steve,

I appreciate the response but the situation is not as simple as you assumed. We do, in fact, pay taxes on our investment earnings. We have run an operating surplus for the prior 3 years and, therefore, file 1120 instead of 1120-H. Our auditor advised that this vehicle should be treated as a capital asset because, unlike other common elements, the vehicle could be disposed of by the association. I am trying to get an understanding of the mechanics of the depreciation process.

Steve,

Don't forget to add planned maintenance of the vehicle and the replacement cost as part of your reserve funds. Your Assessments may need to go up to fund the reserves.

Tim

DavidW5,

Does not directly address your question – but would you explain “an operating surplus that requires you to file 1120 rather than 1120-H.