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3/29/2014 8:50:03 AM
 
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Section 5: OPA Board Subject: COPE Golf Petition? Msg# 881386
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Hi Gene,
Very interesting and informative post. While we are on GAAP related topic let me ask you additional question, I am very interested in your option. In the case of an HOA what do you believe is the most appropriate acct system to use: accrual basis of accounting, modified cash basis or cash basis? Is the one that OPA uses based on some kind of "state" or federal mandate? Thanks.... Slobodan |
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For reference, the above message is a reply to a message where: Jeff, The accounting for any premature retirement of a depreciable asset that is not fully depreciated requires that the undepreciated amount of that asset be written off as an expense in the year that the asset is retired. I do not subscribe to the theory that the collection of depreciation is related to the replacement of the asset, rather it is related to the replacement of the investment made in the asset. I do not believe that OPA is currently collecting depreciation for example on the community center and, starting this year, on the new yacht club so that it can be replaced in 40 or 50 years from now. No one knows NOW whether or not the yacht club or the community center will be replaced 40 or 50 years hence. That is for the membership at that time to decide. The more modern financial theory for collecting depreciation on depreciable assets is to allow for the net resources of the organization to remain at least equal to the amount when the depreciable assets were acquired. If the investment in a depreciable asset is not return to the entity then the net resources available to that organization to perform its mission is decreased. If one believes that the duly elected board of directors acted in good faith for the benefit of OPA when they authorized the recent improvement projects to the golf course then I believe that those investments should be recovered. If the undepreciated amount is considerable then perhaps the decision could be to recover those amounts over a period of time rather than in the year the assets are written off. In my professional opinion, the recovery of the investment in a depreciable asset is all about maintaining the net resources available to an organization over the life of a depreciable asset. To decide not to recover these investments would essentially mean denying future boards from having the same net resources as the board that decided to initially invest in the assets. I know this may be more than you asked for, but when it comes to depreciation I cannot help myself. Gene |
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