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Audit 2002

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Round Hill Estates North Property Owner’s Association Notes to Financial Statements For the Years Ended June 30, 2002 and 2001 Note 1 – Operations and Significant Accounting Policies The Association, a California non-profit corporation, was incorporated in California in January 1981. The Association is responsible for managing and maintaining the common area property and facilities and providing design and aesthetic controls over improvements affecting the general welfare of the Association. The Association is led by a seven-member Board of Directors. Each owner parcel and the common area are subject to the Association’s recorded Bylaws and Covenants, Conditions and Restrictions (CC&Rs), and Architectural Design Guidelines. Method of Accounting The Association keeps it accounting records and files its income tax returns on the accrual basis of accounting wherein revenues are recognized as they are earned and expenses reported as they are incurred. The books and records are maintained by Community Care Property Management. Assessments Each of the Association’s 154 units was assessed a regular assessment of $295 per quarter for the year ended June 30, 2002 and $246 per quarter for the year ended June 30, 2001. The annual budget and owners’ assessments are determined by the Board of Directors and are distributed to owners at least 45 days before the beginning of the year. The Association applies excess operating equity to the next ...
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Round Hill Estates North Property Owner’s Association Notes to Financial Statements For the Years Ended June 30, 2002 and 2001 Note 1 – Operations and Significant Accounting Policies The Association, a California nonprofit corporation, was incorporated in California in January 1981. The Association is responsible for managing and maintaining the common area property and facilities and providing design and aesthetic controls over improvements affecting the general welfare of the Association. The Association is led by a sevenmember Board of Directors.Each owner parcel and the common area are subject to the Association’s recorded Bylaws and Covenants, Conditions and Restrictions (CC&Rs), and Architectural Design Guidelines. Method of Accounting The Association keeps it accounting records and files its income tax returns on the accrual basis of accounting wherein revenues are recognized as they are earned and expenses reported as they are incurred. The books and records are maintained by Community Care Property Management. Assessments Each of the Association’s 154 units was assessed a regular assessment of $295 per quarter for the year ended June 30, 2002 and $246 per quarter for the year ended June 30, 2001. The annual budget and owners’ assessments are determined by the Board of Directors and are distributed to owners at least 45 days before the beginning of the year. The Association applies excess operating equity to the next year’s operating expenses or designates the excess funds for future repair and replacement. Cash and Equivalents For financial statement purposes, the Association considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents are carried at cost, which approximates market value. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilitie sand disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 2 – Restricted Equity The Association budgets a portion of the dues collected for future maintenance and designates certain expenditures as longrange maintenance. The Association is funding contributions to capital for future replacement of selected common areas. This restrictedequity is held in a moneymarketaccount and
United States Treasury Instruments to be used for the replacement of common areas. The amounts added to restricted equity are not taxable; however, interest earned on this restricted equity is taxable. Restricted assets on the balance sheets represent those monies set aside specifically for longrange maintenance. Income tax law may require that the balance in this account be at least equal to the restricted equity account balance. As of June 30, 2002, restricted assets included a U.S. Treasury Bill, which will be held to maturity and is reported at a face value of $203,000 less unmortized discount of $81. As of June 30, 2001, restricted assets included a Treasury Note with a face value of $200,000 and remaining discount of $1,250; which was held to maturity and is reported at cost plus accrued interest. John H. Beatty & Associates recently conducted a study to determine the repair and replacement requirements for the Association’s common area major components. The study covers the period July 1, 2001 through June 30, 2031, as the period of time (30 years) over which expenditures and fund balances (cash) are projected. The findings disclose the necessary annual contributions to the restricted cash accounts to meet projected repair and replacement expenditures over the next 30 years and to keep pace with inflation (assumed at 3.5%). Assuming a cash restricted balance of $275,875 at July 1, 2002, the contribution for Fiscal 2003 will be $35,059 and is projected to increase annually by 14.5% to $95,037 in Fiscal 2012. The table included in the unaudited supplementary information on future major repairs and replacements is based on this study. The Board is funding major repairs and replacements over the remaining useful lives of the components based on the study’s estimates of future replacement costs and considering amounts previously accumulated in the replacement fund. Actual expenditures and investments may vary from the estimated amounts, and the variations maybe material. Therefore, amounts accumulated in the replacement fund may not be adequate to meet all future needs for major repairs and replacements. If additional funds are needed, the Association has the right, subject to membership approval, to increase regularassessments, pass special assessments, or delay major repairs and replacements until funds are available Note 3 – Capitalization Policy The common area property contributed by the developer and replacements and improvements made out of the restricted equity are not capitalized by the Association. The rights of ownership of the common area lie with the collective homeowners. Note 4 – Taxes on Income The Association is taxed for federal and California purposed on its nonexempt income (substantially interest), less directly related expenses. The Association is not taxed on member assessments. For the fiscal years ended June 30, 2002 and 2001, the Association chose to file as a regular corporation for federal and California income taxes. Income tax expense and income taxes payable (prepaid) at June 30, 2002 and 2001 were as follows: 2002 FederalCalif. Total Income tax$ 906$ 185$ 1,091 Estimated payments(1,172) (144)(1,316) Income tax payable (prepaid)(266) (41)(225)
2001 FederalCalif. Total Income tax$ 1,232$ 141$ 1,373 Estimated payments(1,292) (808)(2,100) Income tax payable (prepaid)60 667727 Note 5 – Other Income The Association receives design fees from homeowners for management and architectural costs incurred in the architectural review monitoring program. Note 6 –Deposits The balance in deposits represents amounts collected from owners for landscape and construction work to be completed. When the required work is completed these amounts are usually refunded to the owners. As of June 30, 2002, the Association held $10,000 in landscape deposits and $43,339 in construction deposits. Note 7 – Write off of Uncollectible Legal Claim In June of 1998, the Association’s Board of Directors authorized accruing an estimated claim receivable of $70,000 to recover from a former advisor unreimbursed legal costs incident to a lawsuit settled in 1998. As of June 30, 2001, the Association had received $25,000 and wrote off the remaining $45,000 as uncollectible. Note 8 – Transfer of Restricted Equity to Operating Equity As of June 30, 2001, $132,333 was transferred from Restricted Equity for Future Major Repairs and Replacements to Operating Equity. Of this amount, $107,841 represents excess operating revenues from previous years that had been designated for future repairs and replacements. The board authorized an additional transfer in the amount of $23,500.
Round Hill Estates North Property Owner’s Association Supplementary information on Future Major Repairs and Replacements June 30, 2002 (Unaudited)John H. Beatty & Associates recently conducted a study to determine the repair and replacement requirements for the Association’s common area major components. The study covers the period July 1, 2001 through June 30, 2031, as the period of time (30 years) over which expenditures and fund balances (cash) are projected. The findings disclose the necessary annual contributions to the restricted cash accounts to meet projected repair and replacement expenditures over the next 30 years and to keep pace with inflation (assumed at 3.5%). Assuming a cash restricted balance of $273,324 at July 1, 2002, the contribution for Fiscal 2003 will be $35,059 and is projected to increase annually by 14.5% to $95,037 in Fiscal 2012. The following table is based on the study and presents significantinformation about the components of common property.  EstimatedRemaining Estimated Components UsefulLives (Years)Replacement Costs Fencing 3– 5 YRS$ 20,136 Landscaping 3– 7 YRS29,200 Landscaping Drainage2 – 6 YRS66,200 Light Fixtures7 –12 YRS13,500 Paved Surfaces4 – 9 YRS285,731 Other 3YRS 2,731  $417,498