Many CIRAs make minor purchases of personal property such as clubhouse furnishings, pool patio furniture, office equipment etc. Accumulated depreciation will show how much of the asset has been depreciated (expensed) so far. Personal property and qualified real property acquired by the CIRA should be capitalized and depreciated if applicable over the estimated useful lives of the asset. These assets would be capitalized since the CIRA has title and can usually dispose of the property. CIRAs can also purchase real property such as a unit or raw land. These types of assets are often purchased by the Association subsequent to inception of the CIRA and can be disposed of in the ordinary course of business. Some examples of personal property that may need to be capitalized include but are not limited to recreation equipment, work vehicles, and furnishings and fixtures.

Personal property is most often purchased by the CIRA. Personal Property and Acquired Real PropertyĪssociations are potentially required to capitalize acquisitions of personal property. These types of improvements would include replacing the roof, replacing siding and other capital improvements generally funded via reserve funds.

Although Homeowner Associations do have title in the common property, the assets are not recorded because they either are not used to generate significant cash flows or will not be disposed of in the ordinary course of business.Ĭapital improvements to common area property are also not capitalized if they do not meet the aforementioned qualifications. Homeowner Associations generally do have title to common area property. The reason is because the legal framework of Condominium Associations is such that the members of the Association own a pro-rata interest in the common area property such as the clubhouse, tennis courts, walkways, entry gate etc.

The CIRA has the ability to generate significant cash flows from members or non-members (for example renting out the clubhouse).Ĭondominium Associations most often do not have title to common area property.

The CIRA can dispose of the property and retain the proceeds of the disposal.

CIRAs generally do not record, depreciate, and present fixed asset purchases unless they have title to the property and can perform either of the following: Understanding these concepts can help with presenting economic activity to the Board and membership as well as other stakeholders accurately and in accordance with Generally Accepted Accounting Principles (GAAP).Ĭondominium and homeowner associations (CIRAs) have unique requirements for reporting and presenting fixed assets. Knowing the definition of fixed assets is important because it can have a material impact on the balance sheet, income statement and statement of cash flows presented on the accrual basis of accounting. If an expenditure does not meet any of these criteria, then it is classified as a repair or maintenance expense.

It adapts the fixed asset to be used in a new way.

It enhances the overall value of the asset.

The enhancement must fall into one of the following categories: To be capitalized as a fixed asset, the improvement must be expected to last for at least one year. A capital improvement is a major expenditure that enhances a fixed asset to such an extent that the improvement can be recorded as a fixed asset. Painting and minor repairs to property are considered to be non-capital expenses required to be expensed when incurred. These types of expenditures are also called period expenses because they generally benefit periods on a monthly basis or less than a year. Non-capital expenditures include expensed amounts typically found in the operating budget such as general maintenance, utilities, management fees and insurance. Examples of fixed assets include land, buildings, machinery and equipment and furnishings such as clubhouse furniture. Homeowner Associations are differentiated from Condominium Associations in that Homeowner Associations have a different legal framework and usually consist of single-family homes.įixed assets are non-liquid assets (not purchased to sell in the ordinary course of business and that have a long-term use, longer than a year). Therefore, in this article and in the context of Condominium and Homeowner Associations (CIRAs), capital assets will be equivalent to fixed assets. Capital expenses are also sometimes referred to as fixed assets. As a Certified Public Accountant, I am often asked to explain the difference between capital and non-capital expenses.

Capital costs