CALCULATING RESERVES (Member's Equity)

Started by PB • 4 replies • 2399 views

💬 Join us to post & get advice from 50,000 HOA & Condo leaders.

⚡ Takes 30 seconds

Already a member? Log in

PB (Maryland)
Posts: 4

Posted:

I'm trying to calculate our Reserves 'percent funded.' Do you add Member's Equity to the Reserves? Our latest audit says 100% full funding, component method, of 'reserves only' would have us at $695K. Without equity, we actually have $240K 'cash method' ... does that mean our reserves are only 33% funded? Or am I comparing apples to oranges? That doesn't seem like enough money in reserves to me. It is a concern. ...sigh...

RichardP13 (California)
Posts: 1,767

Posted:

Member Equity would be defined as Retained Earning, past years accumulation of profit/loss and Current Year Net Income.

From the Balance Sheet, Assets=Liabilities(accounts payable and monies allocated to reserves)+Equity

RogerB (Colorado)
Posts: 5,067

Posted:

Quote:

Posted By PB on 08/04/2014 9:25 AM
I'm trying to calculate our Reserves 'percent funded.' Do you add Member's Equity to the Reserves? Our latest audit says 100% full funding, component method, of 'reserves only' would have us at $695K. Without equity, we actually have $240K 'cash method' ... does that mean our reserves are only 33% funded? Or am I comparing apples to oranges? That doesn't seem like enough money in reserves to me. It is a concern. ...sigh...

I suggest you place the emphasis on a long range (20 years or more) reserve study rather than percent funded. A reserve study is the guide to establishing the annual budget and associated assessment needed.

DavidW5 (North Carolina)
Posts: 565

Posted:

Our balance sheet shows replacement reserves and members equity as two separate entries. Members equity constitutes our operating contingency and is intended for unexpected operating expenses not for replacement of common elements. The amount shown on your balance sheet entry for replacement reserves is the only amount available to you for replacing common elements.

We do not use the component method for our reserves but my understanding is that the percent funded calculation is done for each component. For example, an item in the reserve inventory may have a 10 year useful life, a replacement cost of $10,000 and you contribute $1,000 per year to reserves for this component. If the item now has a remaining useful life of 5 years and the reserve balance for this component is $5,000 then you are 100% funded for that item. If the balance is only $2500 then the component is only 75% funded. The summation of those calculations for each component gives the overall percent funded.

Percent funding is not a meaningful statistic for the cash flow method.

PB (Maryland)
Posts: 4

Posted:

Thanks all!

🎯 You've read this entire discussion

Join the conversation with 50,000 HOA & Condo Leaders:

✓ Ask follow-up questions
✓ Share your experience
✓ Get expert advice
✓ Access 350,000 discussions

Create Free Account →

⚡ Takes 30 seconds

Already a member? Log in here