BUDGETS & RESERVE SCHEDULES - Florida Department of ...

DIVISION OF FLORIDA CONDOMINIUMS, TIMESHARES, AND MOBILE HOMES

DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION

BUDGETS & RESERVE SCHEDULES

A Self-Study Training Manual

2601 Blair Stone Road , TALLAHASSEE, FLORIDA 32399-1031

Budgets & Reserve Schedules A Self-Study Training Manual

PUBLISHED BY THE Department of Business and

Professional Regulation Division of Florida Condominiums,

Timeshares, and Mobile Homes

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TABLE OF CONTENTS

FIGURES & TABLES..............................................................................................................................................5

PREFACE ....................................................................................................................................................................6

1 GETTING STARTED ..............................................................................................................................................8

WHY DO ASSOCIATIONS HAVE A BUDGET?.............................................................................................................8 WHEN TO BEGIN THE BUDGETING PROCESS ...........................................................................................................8 MEETINGS HELD WHILE DEVELOPING THE BUDGET ................................................................................................8 SAMPLE NOTICES ......................................................................................................................................................9 ABOUT ACCOUNTING RECORDS ...............................................................................................................................9 ACCOUNTING SOFTWARE........................................................................................................................................10 GOOD ACCOUNTING PRACTICES ............................................................................................................................10 PROVIDING ACCESS TO ACCOUNTING RECORDS...................................................................................................10 SUMMARY OF CHAPTER 1 .......................................................................................................................................11 PRACTICE EXERCISES .....................................................................................................................................14 ANSWER KEY.......................................................................................................................................................15

2 THE BUDGET........................................................................................................................................................16

SECTIONS OF THE BUDGET .....................................................................................................................................16 USE OF RESERVES FOR OTHER PURPOSES...........................................................................................................16 INVESTING ASSOCIATION FUNDS ............................................................................................................................18 FISCAL YEAR ...........................................................................................................................................................19 SUMMARY OF CHAPTER 2 .......................................................................................................................................19 PRACTICE EXERCISES .....................................................................................................................................25 ANSWER KEY.......................................................................................................................................................27

3 RESERVES ............................................................................................................................................................28

WHAT ARE RESERVES? ..........................................................................................................................................28 DEFERRED MAINTENANCE & CAPITAL EXPENDITURE RESERVES .........................................................................28 EXAMPLES OF CAPITAL EXPENDITURES .................................................................................................................29 PRACTICE EXERCISES .....................................................................................................................................30 DIFFERENT TYPES OF RESERVES...........................................................................................................................30 POOLED RESERVES ................................................................................................................................................31 WHY ESTABLISH RESERVES? .................................................................................................................................31 WAIVING OR REDUCING RESERVES........................................................................................................................32 PRACTICE EXERCISE ........................................................................................................................................34 TYPES OF RESERVES TO ESTABLISH......................................................................................................................35 ESTIMATING RESERVES ..........................................................................................................................................35 SUMMARY OF CHAPTER 3 .......................................................................................................................................36 ANSWER KEY.......................................................................................................................................................36

4 RESERVE SCHEDULE........................................................................................................................................38

WHAT IS A RESERVE SCHEDULE? ..........................................................................................................................38 RESERVE SCHEDULE DISCLOSURES ......................................................................................................................38 STEP SIX COMPUTE THE CURRENT YEAR FUNDING REQUIREMENTS AND WRITE THE REQUIREMENTS ON THE SCHEDULE ...............................................................................................................................................................41 ADJUSTING THE SCHEDULE.....................................................................................................................................44 PREPARING THE POOLING SCHEDULE ....................................................................................................................44 POOLING METHOD RESERVE SCHEDULE DISCLOSURES .......................................................................................47 HOW TO FUND RESERVES ......................................................................................................................................49 PRACTICE EXERCISES .....................................................................................................................................50 ANSWER KEY.......................................................................................................................................................51

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5 OPERATING EXPENSES....................................................................................................................................52 THE BUDGET ...........................................................................................................................................................52 THE ASSOCIATION'S ACCOUNTING INFORMATION SYSTEM ...................................................................................52 ACCRUAL BASIS OF ACCOUNTING AND CASH BASIS OF ACCOUNTING..................................................................54 ESTIMATING THE ASSOCIATION'S OPERATING EXPENSES .....................................................................................54 HISTORICAL DATA ...................................................................................................................................................55 CONTENTS OF THE OPERATING SECTION OF THE BUDGET....................................................................................56 TIPS ON PREPARING THE BUDGET..........................................................................................................................57 BUDGET LINE ITEMS EXPLAINED.............................................................................................................................58 SUMMARY OF CHAPTER 5 .......................................................................................................................................58

6 ASSESSMENTS....................................................................................................................................................59 HOW DO I COMPUTE THE ASSESSMENTS? ............................................................................................................59 PRACTICE EXERCISES .....................................................................................................................................61 THE BUDGET ADOPTION PROCESS.........................................................................................................................62 BOARD APPROVED BUDGET ...................................................................................................................................62 UNIT OWNER-APPROVED BUDGET..........................................................................................................................62 BUDGET EXCEEDS 115 PERCENT OF PRIOR YEAR'S ASSESSMENTS....................................................................63 PRACTICE EXERCISES .....................................................................................................................................66 COLLECTION OF ASSESSMENTS..............................................................................................................................67 SUMMARY OF CHAPTER 6 .......................................................................................................................................68 ANSWER KEY.......................................................................................................................................................69

7 REVIEW ..................................................................................................................................................................70 FINAL PRACTICE EXERCISES .........................................................................................................................72 ANSWER KEY.......................................................................................................................................................75 CONCLUSION ...........................................................................................................................................................76

APPENDICES ...........................................................................................................................................................77 REFERENCES ......................................................................................................................................................81 GLOSSARY ...........................................................................................................................................................81

SAMPLE LIMITED PROXY......................................................................................................85

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FIGURES & TABLES

Table 1.1 Summary of Chapter 1

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Figure 1.1 SAMPLE NOTICE THAT IS PROPER

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Figure 1.2 IMPROPER SAMPLE NOTICE

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Table 2.1 Summary of Chapter 2

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Figure 2.1 Sample Operating Section of the Proposed Budget

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Figure 2.2 Sample Reserves Section of the Proposed Budget

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Table 2.3 Examples of How To Compute the Vote To Use Reserves For Other Purposes

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Table 3.2 Summary of Chapter 3

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Figure 4.1 Completed Sample Reserve Schedule Using the Segregated Method

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Figure 4.2 Reserve Schedule Using the Pooling Method

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Figure 4.2 Continued Reserve Schedule Using the Pooling Method

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Figure 5.1 Sample Accounts Receivable Subsidiary Ledger

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Figure 6.1 Budget Increase Does Not Exceed 115% of Prior Year's Assessments

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Figure 6.2 Budget Increase Exceeds 115% of Prior Year's Assessments

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Sample Budget For the Fiscal Year January 1, 2002 through December 31, 2002

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