Budgets and Reserve Schedules A Self Study Training Manual For Beginners

DIVISION OF FLORIDA CONDOMINIUMS, TIMESHARES,
AND MOBILE HOMES
DEPARTMENT OF
BUSINESS AND PROFESSIONAL REGULATION
BUDGETS & RESERVE SCHEDULES

A Self-Study Training Manual for Beginners
1940 NORTH MONROE STREET, NORTHWOOD CENTRE , TALLAHASSEE, FLORIDA 32399-1032

Budgets & Reserve Schedules
A Self-Study Training Manual for
Beginners
PUBLISHED BY THE
Department of Business and
Professional Regulation
Division of Florida Condominiums,
Timeshares, and Mobile Homes
Revised: May 2007
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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
ANSWER KEY.......................................................................................................................................................27
3 RESERVES ............................................................................................................................................................28
WHAT ARE RESERVES? ..........................................................................................................................................28
DEFERRED MAINTENANCE & CAPITAL EXPENDITURE RESERVES .........................................................................28
EXAMPLES OF CAPITAL EXPENDITURES .................................................................................................................29
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
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
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ANSWER KEY.......................................................................................................................................................51
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
6 ASSESSMENTS....................................................................................................................................................59
HOW DO I COMPUTE THE ASSESSMENTS? ............................................................................................................59
THE BUDGET ADOPTION PROCESS.........................................................................................................................62
BOARD APPROVED BUDGET ...................................................................................................................................62
UNIT OWNER-APPROVED BUDGET ..........................................................................................................................62
BUDGET EXCEEDS 115 PERCENT OF PRIOR YEAR’S ASSESSMENTS....................................................................63
COLLECTION OF ASSESSMENTS..............................................................................................................................67
ANSWER KEY.......................................................................................................................................................69
7 REVIEW ..................................................................................................................................................................70
FINAL PRACTICE EXERCISES .........................................................................................................................72
ANSWER KEY.......................................................................................................................................................75
CONCLUSION ...........................................................................................................................................................76
APPENDICES ...........................................................................................................................................................77
REFERENCES......................................................................................................................................................81
GLOSSARY ...........................................................................................................................................................81
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FIGURES & TABLES
Table 1.1 Summary of Chapter 1 11

Figure 1.1 SAMPLE NOTICE THAT IS PROPER 12
Figure 1.2 IMPROPER SAMPLE NOTICE 13
Figure 2.1 Sample Operating Section of the Proposed Budget 20
Figure 2.2 Sample Reserves Section of the Proposed Budget 23
Table 2.3 Examples of How To Compute the Vote To Use Reserves For Other Purposes 24
Figure 4.1 Completed Sample Reserve Schedule Using the Segregated Method 43
Figure 4.2 Reserve Schedule Using the Pooling Method 45
Figure 4.2 Continued Reserve Schedule Using the Pooling Method 46
Figure 5.1 Sample Accounts Receivable Subsidiary Ledger 53
Figure 6.1 Budget Increase Does Not Exceed 115% of Prior Year’s Assessments 64
Figure 6.2 Budget Increase Exceeds 115% of Prior Year’s Assessments 65
Sample Budget For the Fiscal Year January 1, 2002 through December 31, 2002 78
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PREFACE
Our Goals
• To describe the budgeting process, and highlight the statutory requirements for
preparing the association budget and reserve schedules. This manual relates to
associations in which the developer is no longer in control of the association.
• To provide a self-study training manual for condominium association board members
and unit owners who are not familiar with preparing the association budget.
• To provide illustrative examples of all related schedules and materials.
Programmed Instruction.
The manual includes practice exercises are included so that you will be able to put
your knowledge to work right away. You will benefit from the material more if you
master the concepts in each chapter before moving on to the next.
Self-Study / Self-Paced.
The manual provides the basic knowledge needed to prepare a proposed budget
and reserve schedule. You can progress and learn at your own speed. The
chapters are short to make it easier for you to learn the material and organize the
content for future reference.
Teaches Concepts in Sequence.

The manual is arranged so that you learn from start to finish how to prepare a
proposed budget and reserve schedule. We suggest that, as you progress, you look
at your own association’s budget and reserve schedule and compare it to the
information provided. Another alternative is to use the manual to develop a
proposed budget and reserve schedule for your own association as you learn the
concepts.
A review is provided after all of the chapters have been completed. In addition, you
will have the opportunity to assess your level of knowledge by responding to some
questions. The more you apply your knowledge, the more information you will
retain.
Based Upon Statutes and Administrative Rules.

Although not needed to complete the manual, you should review the Condominium
Act, and Chapter 61B-22, Florida Administrative Code.
Is This Manual For You?

The manual is designed for board members and unit owners with limited knowledge
or experience in preparing a budget or reserve schedule. The manual should also
be of assistance to experienced board members who would like a refresher course,
or someone who has just volunteered to serve on the budget committee.
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Additionally, you should have a copy of your association bylaws and declaration of
condominium available for reference.
The manual was written at an introductory level to assist individuals who fulfill the
criteria stated above. Therefore, topics such as multicondominiums, limited common
elements, and issues pertaining to associations that are still controlled by the
developer are only briefly addressed. It must be recognized that the complexity and
sophistication of budget preparation will vary based upon the size of the association.
In other words, there is no “one size fits all” sample budget, and budgets for different
associations will not look the same. However, all budgets must contain those
disclosures required by the Condominium Act and administrative rules.
Others who might benefit include newly licensed community association managers,
managers who need to refresh their memory about basic statutory and
administrative rule requirements, and certified public accountants and developers
who are not familiar with condominium or cooperative budgeting requirements.
Suggestions For Improvement?

If you have any comments or suggestions for improvement of this manual, please
submit your ideas to the Division of Florida Condominiums, Timeshares, and Mobile
Homes, Attention: “Budgets and Reserve Schedules,” 1940 North Monroe Street,
Northwood Centre, Tallahassee, Florida 32399-1032.
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1 Getting Started
This chapter addresses why associations should have a budget, when to start work
on the proposed budget, how various meetings should be noticed, and provides
information about accounting records.
Why Do Associations Have A Budget?
Operating an association can be compared to running a business. The board of
directors of every corporation must have a plan to anticipated revenues and
expenses for the upcoming year. The board protects the stockholders by estimating
how much money must be earned in order to pay the corporation’s expenses.
Condominium associations are operated in much the same manner.
An association’s budget assists the board of directors by projecting expenses and
creating a benchmark by which to compare the board’s stewardship of the financial
assets of the association. The budget provides for control over certain restricted
funds of the association. It also identifies how much money must be collected from
the unit owners and how often the collection must be made. Basically, the budget is
simply a map that will guide the board in making decisions during the course of the
year. Since the budget is only an estimate of future expenses unexpected events
may occur that will require the board to make changes to the budget during the
budget period.
When to Begin the Budgeting Process
It is a good idea to start gathering information needed to prepare the proposed
budget three months before it becomes effective. This should give you plenty of
time to do such things as compare historical budget versus actual performance,
research the payment histories of association members, identify and talk to key
people about the costs of equipment and services, and determine whether additional
expenditures are needed to maintain the property, etc.
Meetings Held While Developing the Budget
Often, the board or budget committee will meet to gather and discuss information
and make decisions as the proposed budget is developed. Notice of these meetings
must be posted appropriately and open to the unit owners. You need to be aware of
the laws about noticing these meetings. The Condominium Act, Chapter 718 of the
Florida Statutes, and the related administrative rules provide guidance on this topic.
In short, they indicate that board meetings and committee meetings have the same
notice requirements.
Note that any meeting at which the budget will be considered for adoption
requires a 14 day notice. Board and committee meetings at which the budget
will not be considered for adoption require 48 hour notice to the unit owners.
Some tips for preparing board and committee meeting notices are:
• Ensure you have plenty of time to prepare the notice. Specify the date, time, and
location of the meeting on the notice;
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• Include a list of specific agenda items to be addressed in the meeting; and
• Post the completed notice in a conspicuous location on the property at least 48
hours before the meeting. (A specific location for posting meeting notices should
have already been designated.)
If there is no property to post the notice on, it must be mailed or delivered to the unit
owners at least 14 days before the meeting. Keep in mind that if the condominium
documents (e.g., declaration of condominium, bylaws, and articles of incorporation)
provide guidelines that are more restrictive than the statutes, then the documents
must be followed. For example, the law addressing notice of board and committee
meetings requires 48 hour notice preceding the meeting except in an emergency. If
the condominium documents require 72 hours notice before the meeting, the
association must provide 72 hour notice. On the other hand, if the documents
require 24 hours notice before the meeting, the association must provide at least 48
hours notice.
Sample Notices
Figures 1.1 and 1.2 on pages 12 and 13 are examples of proper and improper
notices of board meetings at which the budget is being developed. Notices you
prepare do not have to look exactly like the notice in Figure 1.1. The important point
to remember is that your notice must include all required information and be posted
by the appropriate date. Check your documents for additional requirements that do
not conflict with the statute. Please review the sample notices before proceeding to
the next topic.
About Accounting Records

Accounting records consist of all those records that record, measure and
communicate financial information, whether maintained electronically or otherwise.
These records include items such as:
• Accurate, itemized, and detailed records of all receipts and expenditures;
• A current account and a monthly, bimonthly, or quarterly statement of the account
for each unit designating the name of the unit owner, the due date and amount of
each assessment, the amount paid upon the account, and the balance due;
• All audits, reviews, accounting statements, and financial reports of the association;
• All contracts for work to be performed. Bids for work to be performed are official
records and must be maintained for a period of one year; and
• Any other records that identify, measure, record, or communicate financial
information.
NOTE: Multicondominium associations must maintain separate accounting records

for itself and for each condominium it operates.
NOTE: The accounting records must be maintained within the State of Florida and
retained by the association for at least seven years.
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Accounting Software
To facilitate recording, maintenance, and retrieval of accounting information, you
may want to consider purchasing some type of accounting software. Software
packages, such as spreadsheets and others that are specifically tailored for
condominium associations are readily available. The Division cannot recommend
specific software. You may want to contact your CPA, licensed community
association manager, or other software experts to assist you in locating the software
that is appropriate for your association.
Good Accounting Practices

Accounting records should be maintained according to good accounting practices.
This means that the accounting records should be maintained in sufficient detail so
that when someone inspects the records, that person will be able to determine the
assets, liabilities, cash flows, as well as all of the revenues and expenses of the
association. Good accounting practices also include controls to protect the financial
assets of the association.
As the size of an association increases the complexity of the financial record
keeping will also increase. In addition, associations of all sizes are vulnerable to
fraud and embezzlement. You should consult a CPA or other professionals to obtain
more information on developing adequate internal controls and safeguards.
Providing Access to Accounting Records

One more item to keep in mind before moving on to developing the budget is the
concept of access to records. The Condominium Act provides that the accounting
records are open to inspection by any unit owner or authorized representative at all
reasonable times. Additionally, if a written request for access to the records is
received by the association, the records must be made available within five working
days. The unit owner or authorized representative has the right to make or obtain
copies from the association. A fee cannot be charged for simply accessing the
records. Associations may adopt reasonable, clear, and understandable rules
addressing:
• How unit owners should provide the association with notice for requesting access
(e.g., whether the notice must be in writing and sent by certified mail, to whom the
notice should be given, what information the notice must contain, etc.).
• Frequency of access, reasonable restrictions on number of times per week or month
that access will be granted.
• Time of access, including all reasonable working hours.
• Manner of inspecting the accounting records (e.g. whether a board member or other
designated individual will be present during inspection, whether or not the records
can be removed from the location, etc.).
• Location where the records may be inspected or copied.
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Note: If the association fails to allow unit owners access to the records the statutes
provide for certain remedies, including monetary damages for the unit owner. Please
refer to Section 718.112(2), Florida Statutes.
Summary of Chapter 1
The following table summarizes the main points about what you must know to begin
developing the proposed budget and reserve schedule.
Table 1.1 Summary of Chapter 1
Records Retained for at Least Seven

Three Months Preparation Time Years
Open Board & Committee Meetings Good Accounting Practices
Proper Notice of These Meetings Unit Owner Access to Records
Reasonable Rules for Access to
Accounting Records Kept in Florida Records
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Figure 1.1 SAMPLE NOTICE THAT IS PROPER
CANASTA CONDOMINIUM ASSOCIATION, INC.

NOTICE OF BOARD MEETING
TO: All Unit Owners / Residents
FROM: Canasta Condominium Association, Inc.
Post Office Box 1234
Notices, Florida 54321
DATE: April 1, 2002
Notice is hereby given that the board of directors will meet on Friday, April 4,
2002, at 7:30 P.M. The meeting will take place in the clubhouse.
AGENDA ITEMS
Call to Order
Statement of Quorum
Proof of Meeting Notice
Approval of Minutes of March 5, 2002
Old Business - Refinish Swimming Pool
Development of the 2003 / 2004 Operating Budget
New Business – Hurricane Shutters
Set Date of Follow-up Meeting
Adjournment
Figure 1.2 IMPROPER SAMPLE NOTICE
CANASTA CONDOMINIUM ASSOCIATION, INC.

NOTICE OF BOARD MEETING
TO: All Unit Owners / Residents

FROM: Canasta Condominium Association, Inc.
Post Office Box 1234
Notices, Florida 54321
DATE: April 1, 2002
Notice is hereby given that the board of directors will meet on Friday, April 4, 2002, at 7:30 P.M.
AGENDA ITEMS
Old Business
New Business
Adjournment
ITEMS with an X ARE MISSING
Date.
Time.
X Location.
X List of designated agenda items.
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PRACTICE EXERCISES
The board of directors of your association has appointed you to the Budgeting
Committee. You’re responsible for noticing any committee meetings held to develop the
proposed budget package. (Use this scenario to answer questions 1, 2, and 3.)
1) What is the statutory time frame for noticing these meetings? (Circle one.)
a) At least 24 hours.
b) At least 72 hours.
c) At least 48 hours.
d) Not addressed by the statute.
2) Identify the information that must be on the committee’s meeting notices.
a)
b)
c)
3) The bylaws state that the board and committee meeting notice must be posted 24
hours prior to the meeting. What will you do? (Circle one.)
a) Post the notice 24 hours prior to the meeting.

b) Post the notice at least 48 hours prior to the meeting.
4) Complete the following sentence.
The accounting records must be maintained in and kept for at

least years.
5) Accounting records must be maintained according to good accounting practices.
Based upon the size of the association, the specific practices that are used may
vary. Which of the following statements identifies what is meant by the phrase “good
accounting practices”? (Circle all that apply.)
a) The phrase implies a standard of conduct that must be established for good
controls over the accounting records and financial assets of the association.
b) The phrase implies that the accountant should practice accounting every day.
c) The phrase implies that the records should be maintained in sufficient detail to
allow for tracking revenues, expenses, assets and liabilities.
6) The Condominium Act states that the accounting records are: (Circle one.)
a) Private records are not accessible by unit owners.

b) Open to inspection by any unit owner or authorized representative at all
reasonable times.
c) Accessible only if the owner or representative makes the request in writing.
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7) Mrs. Smith mails a letter to the board identifying various accounting records she
would like to see. Within what time frame after receiving the written request must
the board allow Mrs. Smith access? (Circle one.)
a) 10 business days.
b) 5 calendar days.
c) 5 business days.
ANSWER KEY
1) C. The Condominium Act provides that board and committee meetings held to
develop a proposed budget package must be noticed at least 48 continuous hours
prior to the meeting. The notice must be posted conspicuously on the property with
an identification of agenda items.
2) Notices of board or committee meetings held to develop a proposed budget package

must include, at a minimum, the following items:
a) Date of the meeting.

b) Time of the meeting.
c) Location of the meeting.
d) A list of specific agenda items.
3) B. You will post the notice at least 48 hours prior to the meeting because the
statute, in this case, is more restrictive than the bylaws requirement of 24 hours.
4) The sentence should have been completed as follows:

The accounting records must be maintained in FLORIDA and kept for at least
SEVEN (7) years.
5) A. and C. Although the size of the association will determine the specific
accounting practices that will be utilized, all associations should adopt accounting
practices that fulfill these two criteria.
6) B. The records are accessible at all reasonable times. The statutes do not require
that a request be made in writing. However, if a written request is made, the
association then must allow access within 5 business days.
7) C. The records must be made available within 5 business days. It’s a common
misconception that the association has 10 business days to allow access. Waiting
10 business days creates the presumption that the association willfully failed to allow
access.
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2 The Budget
This chapter addresses the two main sections of the budget, restrictions on reserve
funds, investment restrictions on association funds, and the budget period.
Sections of the Budget

The budget has two main sections - operating and reserve. Figure 2.1 on page 20 is
an example of the operating section, and Figure 2.2 on page 23 is an example of the
reserve section. The operating portion of the budget identifies the categories of
expenses (called line items) that relate to the day-to-day operation of the
association. These expenses can be anticipated to be incurred on a fairly regular
basis such as monthly or annually.
The dollar amounts assigned to each line item are the estimates of how much
money may be spent on that particular line item for the budget period. Operating
expenses are not restricted to the estimates provided and the board can use money
allocated to one operating line item for other purposes. In other words, money in the
operating section of the budget is not restricted to any particular purpose.
Examples of line items that are generally found in the operating section of the
budget include:
• Bad Debt • Vending Machines
• Salaries • Accounting
• Office Supplies • Division Annual Fees
• Management Fees • Corporate Fees
• Utilities • Legal
• Taxes • Postage
• Insurance • Office Equipment
The other section of the budget is the reserve section. The reserve section contains
funds that are restricted for specific purposes. The Condominium Act requires that
reserves be established for certain items including: roof replacement, building
painting, pavement resurfacing and any other item of capital expenditure or deferred
maintenance that exceeds $10,000.
Use of Reserves for Other Purposes

As opposed to the operating section, funds that are a part of the reserve section can
only be used for the purpose intended, unless approved by a vote of the unit owners.
If the board identifies a need elsewhere for the funds, the board cannot simply
withdraw and use them. Chapter 3 will cover more specifics about how the funds
must be used. The main point here is that reserves can only be used for the
purpose intended. Subsection 718.112(2)(f)3., of the Florida Statutes (F.S.)
16
indicates that reserve funds and reserve interest must be used for authorized
reserve expenditures unless their use for other purposes is approved in advance by
a vote of the majority of the voting interests at a duly called meeting of the unit
owners. In other words, if “just over half” of the voting interests present, or
represented by limited proxy, at a meeting of the unit owners. The Division has
created a Sample Limited Proxy Form to assist associations with their use. Limited
proxies are used if an owner cannot, or chooses not to, vote in person at the
meeting. The following example illustrates the steps an association will typically go
through to obtain this type of vote:
Example:
Due to recent storm damage the building’s roof needs to be replaced before it was
scheduled. The association plans to use funds from the roof replacement reserve
account, and it will file a claim with the insurance company. However, this will not
generate sufficient funds to pay for the work. The board of directors has determined
it will be in the best interests of the association to pull funds from the pavement
resurfacing reserve to cover the shortfall. Before this can be done, the board must
determine the following:
1) The number of units in the condominium.
Assume, for this example, a condominium has 100 units.

2) The vote assigned to each unit.
Assume, for this example, that the assigned voting interest is one vote per
unit.
3) The number of the voting interests needed to establish a quorum. (A quorum
must be established at the meeting, in person or proxy, before business can be
conducted.)
Assume for this example that the association needs at least a majority (just
over half) of the total voting interests need to be present or represented by
proxy to establish a quorum. At least 51 of the 100 voting interests are
required for the quorum.
4) The procedures for calling a unit owner meeting. If proxies are used, a limited
proxy, substantially the same as the Division’s Sample Limited Proxy, Form must
be provided to the owners.
The board is then able to call the unit owner meeting, and 80 voting interests
are present in person and by proxy. Since 80 is more than the required
minimum quorum of 51, a quorum is established and the meeting can
continue. After counting the votes, 41 votes approve of using a portion of the
pavement resurfacing reserve to help pay for the roof replacement.
17
In this example, the association needed to establish a quorum at the unit
owner meeting and obtain approval from at least a majority, or just over half,
of the voting interests present or represented by limited proxy to use reserve
funds for other purposes. Since a quorum was established and 41 votes (a
majority of the 80 votes present or represented by limited proxy) approved the
action the board can withdraw the funds needed to help pay for the roof
replacement. Note that general proxies may be used for the purpose of
establishing a quorum, but only limited proxies may be used to conduct the
vote.
Table 2.3 on page 24 provides examples that should assist you in computing the
required vote. Please review this before reading the next topic about maintaining
association funds.
NOTE: Multicondominium associations should refer to Rule 61B-22.005(7), F.A.C.,
for procedures on voting to use reserve funds for other purposes.
Investing Association Funds

While the Condominium Act does not restrict the types of investments that
associations may use to generate a return on it funds, there are a few things that
board members should keep in mind about investing association funds. First, board
members have a fiduciary duty to the membership, such relationship requires
prudent investment decisions that carefully consider risk and return. Next, board
members should consider the deposit limits that are insured by the federal
government. The risk to association funds can be limited by spreading the bank
accounts out so that no one account has excess exposure. Associations should
also consider using separate accounts for operating and reserve investments.
There are several reasons that this may be a good idea. Since most associations
collect monthly assessments, the operating cash should be highly liquid (readily
available) and is usually kept at a level necessary to cover monthly expenses, plus a
cushion. On the other hand, reserve funds are usually maintained with less liquidity
in mind and generally have higher average balances in the accounts than operating
funds. Using a separate account for the restricted fund investments is also a good
control procedure that helps ensure that the board does not unknowingly spend
funds that are set aside for one purpose on something other than what was
intended. Note that section 718.111(14), F.S., prohibits associations from
commingling operating and reserve funds except for investment purposes.
Investment purposes means that there is an expectation of a return on the principal
deposits. Tax implications of the association investment decisions are beyond the
scope of this manual. You should seek the advice of your tax professional before
making your investment decisions.
NOTE: It is possible that an association may place its funds in accounts other than
bank accounts. The term “bank accounts” was used here for the ease of
explanation.
NOTE: Multicondominium associations should refer to Rule 61B-22.002, F.A.C., for
information on how to maintain the accounting records.
18
Fiscal Year
The budget must cover an annual operating period known as the fiscal year. The
fiscal year may be the calendar year or some other 12 month period. Most Florida
condominium associations use a calendar year for their fiscal year (January 1
through December 31). However, alternative fiscal years such as April 1 through
March 31 or October 1 through September 30 are also used. The bylaws will usually
indicate the fiscal year for the association. You must know what the fiscal year is for
the association in order to draft the annual budget.
The following table summarizes this chapter’s concepts about the budget.
Budget Is Divided Into Two Operating and Reserve Funds Cannot

Sections – Operating & Reserve be Commingled except for investments
Money In Operating Section Is

Not Restricted to any Particular
Purpose Bylaws Usually Identify the Fiscal Year
Money in Reserves Section is Fiscal Year = Accounting Period of

Restricted to Its Original Twelve Months, Usually the Calendar
Purpose Year
Unit Owners Must Approve

Using Reserves For Other
Purposes
19
Figure 2.1 Sample Operating Section of the Proposed Budget
For the Fiscal Year January 1, 2002 through December 31, 2002
REVENUES
Assessment Income: $345,600
Interest Income:
Operating Account $3,510
Savings Account 2,610
Total: 6,120
Other Income:
Miscellaneous $108
Drinks 4,800
Fax 250
Laundry 9,640
Snacks 600
Games 5,508
Total: $20,906
TOTAL REVENUES $372,626
Reserves:
Roof Replacement $8,000
Pavement Resurfacing 3,504
Building Painting 18,008
Elevators 800
Clubhouse 3,000
Walkways 3,000
Total $36,312
Administration:
Accounting $5,004
Bad Debt 1,054

Annual Condominium Fee 640
Annual Corporate Fee 62
Insurance (D&O, Fidelity, Flood, P&C) 32,004
Legal 804
Licenses and Taxes
Licenses 504
County 144
State 804
Management Fees 6,000
Office Supplies 2,400
Postage 660
Total $50,080
Salaries:
Casual Labor $204
Maintenance Staff 80,012
Payroll Taxes 15,004
Worker’s Compensation 17,600
Total $112,820
Maintenance and Repair:
20
Buildings $8,004
Elevators 4,000
Fire Systems 3,000
Grounds 7,008
Supplies and Tools 8,008
Swimming Pool 6,408
Tennis Courts 660
Laundry 5,000
Miscellaneous 504
Total $42,592
Utilities:
Electricity $23,004
Pest Control 4,008
Sanitation 14,004
Sewer 28,500
Telephone 1,404
Water 12,504
Total $83,424
Vending:
Drinks $2,000
Fax 120
Soap Products 3,000
Snacks 360
Games 120
Total $5,600
Other Expenses:
Security $25,008
Rent for Recreational / Other 0
Commonly Used Facilities 0
Taxes on Association Property 0
Taxes on Leased Areas 0
Operating Capital
Special Enhancements 7,250
Contingency 9,540
Total $41,798
ADDITIONAL EXPENSES FOR A UNIT OWNER
Rent For Unit Subject To Lease 0
Rent Payable by Owner Directly to Lessor 0
Under Recreational Lease / Lease for 0
Total $0
21
EXPENSES FOR ASSOCIATION & CONDOMINIUM
MONTHLY OPERATING EXPENSES $31,052

NET INCOME (LOSS) $0
ASSESSMENTS FOR EACH UNIT (160 units)

Annual $2,158
Monthly $180
OPERATING EXPENSES (w/o reserves) $336,314

TOTAL OPERATING EXPENSES $372,626
22
Figure 2.2 Sample Reserves Section of the Proposed Budget
SCHEDULE OF DEFERRED MAINTENANCE &

CAPITAL EXPENDITURE RESERVES
(for the fiscal year of January 1, 2002 through December 31, 2002)
Estimated Estimated Estimated Estimated Funding

Total Remaining Cost for Fund Required
Reserve Useful Useful Deferred Balance for
Items Life Life Maintenance/ as of Proposed
Capital 12-31-01 Budget
Expenditure Period
(in years) (in years) ($) ($) ($)
Roof
Replacement 12 1 $95,000 $87,000 $8,000
Pavement
Resurfacing 18 7 55,000 30,472 3,504
Building
Painting 5 4 92,000 19,968 18,008
Elevator Repair &
Modernization 25 14 20,000 8,800 800
Clubhouse
Roof Replacement 12 1 60,000 57,000 3,000
Walkway
Improvements 10 9 30,000 3,000 3,000
TOTALS $352,000 $206,240 $36,312
NOTE: This schedule is for illustrative purposes only and does not represent the Division’s
position regarding the life expectancies or costs of reserve assets.
NOTE: Multicondominium associations have additional disclosure requirements for the
proposed budget and reserve schedule. Refer to Rule 61B-22.003, F.A.C., for more
information.
Table 2.3 Examples of How To Compute the Vote To Use Reserves For Other
Purposes
Number of Units As
Stated in
Documents 50 100 150
40 units get ½ vote
Assigned Voting each
Interest in 60 units get 1 vote
Documents 1 per unit each 1 per unit
Quorum Majority of Total Majority of Total 30 Percent (or .3) of
Requirement As Voting Interests Voting Interests Total Voting
Stated in Interests
Documents How To Compute How To Compute
1 vote x 50 units ½ (or .5) vote x 40 How To Compute
= 50 voting units 1 vote x 150 units
interests = 20 voting interests = 150 voting
interests
50 / 2 = 25 1 vote x 60 units
= 60 voting interests .3 x 150 = 45
-therefore-
majority 20 + 60 = 80 -therefore-
of 50 = 26 45 voting interests
80 / 2 = 40 are required
-therefore-
majority
of 80 = 40.5
Voting Interests Majority of Majority of Majority of
Required by Statute Voting Interests Voting Interests Voting Interests
To Use Reserves Present Present Present
For Other Purposes
How To Compute How To Compute How To Compute
Must first establish Must first establish Must first establish
quorum of 26 quorum of at Quorum of 45
least 40.5
Vote Required = Vote Required
Majority of Voting Vote Required = Majority of Voting
Interests Present Majority of Voting Interests Present in
in Person or by Interests Present in Person or by Limited
Limited Proxy Person or by Limited Proxy
Proxy
24
PRACTICE EXERCISES
1) (Complete the sentence.) A budget is divided into two main sections -
___________________________________
and
____________________________________
2) Money in the operating section of the budget: (Circle one.)
a) Is restricted to the line items to which it is allocated.

b) Is not restricted to any particular purpose.
c) Represent the limit that can be spent on each line item.
3) Funds that are a part of the reserves section: (Circle one.)
a) Can be used for all major expenses that occur regardless of the purpose.
b) Can be used for any purpose as long as there is plenty of money in the reserve.
c) Can only be used for the purpose intended.
4) Your association’s board of directors wants to begin setting money aside for the
flood insurance premium that’s due in three years. The board wants to ensure these
funds are not accidentally used for everyday expenses. What could the board do?
(Circle one.)
a) Create a line item entitled “Flood Insurance Premium” in the operating section of
the budget, and put the money with the operating funds.
b) Create a line item entitled “Flood Insurance Premium” in the reserves section of
the budget, and put the money with the reserve funds.
5) Your association needs to repair the roof that was damaged in the storm. The roof
reserve has some money but not enough. The board has decided to pull money
from the pavement reserve to supplement the roof reserve funds. What vote is
required to do this? (Circle one.)
a) A majority of the entire board.

b) A majority of the voting interests present at a unit owner meeting.
c) A majority of the total voting interests.
d) Whatever is set forth in the documents.
25
6) Section 718.111(14), F.S., requires that operating and reserve funds be maintained
in a certain manner. (Circle the correct statement.)
a) Operating and reserve funds can be commingled for investment purposes.

b) Operating and reserve funds cannot be commingled unless approved by a vote
of the unit owners.
c) Operating and reserve funds cannot be commingled.
7) An association’s bylaws indicate that the operating year is a calendar year. When
does this association’s operating year begin and end? (Write your answer in the
space provided.)
26
ANSWER KEY

A budget is divided into two main sections - OPERATING and RESERVE.
2) B. Money in the operating section of the budget is not restricted to any particular
purpose. The board can generally use money allocated to one line item for other
purposes if the need arises.
3) C. As opposed to the operating section, any funds that are a part of the reserves
section can only be used for the purpose intended.
4) B. Since (a) the board wants to ensure that funds will be available in three years
to pay for the flood insurance premium, and (b) money in the reserves section of
the budget must be used for the purpose intended, the board could create a line
item for this in the reserves section. If the money is placed in the operating
section, there’s a greater chance that the insurance premium funds would be
used for everyday expenses.
5) B. The Condominium Act states that reserve funds and reserve interest must be
used for authorized reserve expenditures unless their use for other purposes is
approved in advance by a vote of a majority of the voting interests present or
represented by limited proxy at a duly called meeting of the unit owners.
6) A. Associations are prohibited from commingling, operating and reserve funds

except for investment purposes.
7) The response is JANUARY 1 TO DECEMBER 31. A calendar year by definition is an

accounting period that begins on January 1 and ends on December 31.
27
3 Reserves
This chapter addresses reserves, why they are established, what types of reserves
must be included in the proposed annual budget, and the different reserve funding
methods. This chapter also provides some ideas on obtaining estimates for reserve
items.
What Are Reserves?

Reserves are monies set aside for specific expenditures that will be incurred in the
future. Usually, such expenditures relate to the cost of major repairs to, or
replacements of, the condominium property. If money is not set aside for these
expenses, unit owners will usually have to pay a special assessment at the time
such repair or replacement occurs. Reserves may also be established for other
types of expenditures that are paid infrequently, such as a premium for a three-year
flood insurance policy.
When funds are set aside for a specific use, whether it’s for repairs to or
replacements of the property or for other purposes, means the association must
comply with certain requirements such as disclosing reserve information in the
budget as well as in the year-end financial reporting disclosures.
The definition of reserves is found in Rule 61B-22.001(5), F.A.C.
DEFINITION ALERT Reserves means any funds, other than operating

funds, that are restricted for deferred maintenance and
capital expenditures, including the items required by Section 718.112(2)(f)(2), FS,
and any other funds restricted as to use by the condominium documents or the
condominium association. The reserves required by the Condominium Act are
discussed below.
Deferred Maintenance & Capital Expenditure Reserves

Examples of capital expenditure and deferred maintenance reserves include:
• Roof Replacement • Sidewalk Improvement

• Building Painting • Boardwalk Replacement
• Pavement Resurfacing • Seawall Replacement
• Balcony Restoration • Air Conditioning Replacement
It is important that you determine the purpose of each reserve item maintained by
the association so that you will know what restrictions have been placed on the
expenditure of the reserve funds and when it is OK to make expenditures from the
28
operating account or the appropriate reserve account. The title of each reserve
account should specify the purpose for which the funds can be used.
Reserve funds that are restricted for these purposes may not be used for frequent or
routine maintenance of the property. These expenses should be paid with operating
funds, and the operating portion of the budget should include such estimated routine
expenses. The definition of ‘reserves’ includes the terms ‘deferred maintenance’ and
‘capital expenditure.’
DEFINITION ALERT Deferred maintenance means any maintenance or repair

that will be performed less frequently than yearly, and will
result in maintaining the useful life of an asset.
Example:
An example of a deferred maintenance reserve is building painting. Painting a
building is usually done less frequently than annually, and it results in maintaining
the life of the building. Deferred maintenance can be confused with regular or
routine maintenance. Touch up painting is a routine maintenance item that should
be included in the operating section of the budget and should be paid for with
operating funds.
DEFINITION ALERT A capital expenditure means any expenditure of funds for

the purchase or replacement of an asset whose useful life
is greater than one year, or a repair to an asset that will
extend the useful life of the asset for a period greater than one year.
Examples of Capital Expenditures

An example of a capital expenditure is the purchase of a swimming pool heater. The
association may pay for this expenditure with funds from its reserve account titled
“Pool-Heater Purchase”.
Another example of a capital expenditure is the purchase of a new lawn tractor to
replace the one currently owned by the association. This account could be called
“Lawn Tractor Replacement.”
Another type of capital expenditure is a repair such as replacing the pilings to a
dock. The dock’s useful life expectancy will be extended by more than one year.
This is different from replacing a board here and there on the dock.
It is important to clarify the purpose of a reserve at the time it is created. If a reserve
entitled, “Tennis-Court Resurfacing” were established, then the funds in this reserve
should not be used to replace the lighting system.
It’s important for the board to clearly identify the purpose of each reserve. Although
not required by the Condominium Act, the board should identify the purpose of each
29
reserve in the minutes. The minutes can be used as a reference for future boards
as they make decisions about the use of the reserve funds. If the association’s
documents require certain reserves, the board should ensure the purpose for each is
clearly identified in the documents and in the minutes.
PRACTICE EXERCISES
1) (Complete the sentence.) Repairs or maintenance that will be performed less

frequently than yearly and will result in maintaining an asset’s useful life are called
___________________________________________
2) (Complete the sentence.) Spending reserve funds to purchase or replace an asset

with a useful life of more than one year or to extend the useful life of an asset more
than one year is called
____________________________________________
3) The board has established a reserve entitled, “Swimming Pool Capital Expenditure
Reserve.” For which of the following may the board use the funds? (Circle one.)
a) Purchase pool supplies.

b) Replace the pump.
c) Clean the Pool.
4) The board has established a deferred maintenance and capital expenditure reserve
entitled, “Golf Cart Replacement.” For what purposes may the board use the funds?
(Circle all that apply.)
a) Replacing a golf cart with a new one.

b) Replacing the battery (occurs once every few years).
c) Paying for the electricity to recharge the battery (occurs daily).
d) Replacing the tires with new ones (occurs once every few years).
e) Repainting scuff marks caused by frustrated golfers (occurs daily).
Different Types of Reserves

The association is required to by statute to establish reserves for roofing, painting,
and paving, and any other deferred-maintenance or capital-expenditure items
expected to cost more than $10,000. In addition to the specific deferred-
maintenance and capital-expenditure reserves required by the law, the association
may establish other reserves. Examples of other types of reserves can include:
insurance premium, general deferred maintenance and capital expenditure reserve,
or reserve for purchase of recreational equipment for the clubhouse. Many
associations want to have a reserve called “Contingency Reserve.” The purpose of
this account would be to fund items for which reserves have not been established or
to cover unanticipated operating expenses. However, it is inappropriate to create a
30
“reserve” account for this purpose as there is no apparent restriction on the use of
the funds. Consequently, the account does not meet the definition of a reserve, and
associations that desire to have a contingency account should budget for a surplus
in the operating fund. As stated above, the association may create a reserve for
general deferred maintenance and capital expenditures. Funds in this account may
be used for any deferred maintenance or capital expenditure project, but not for
ordinary operating expenses.
Pooled Reserves
Effective December, 2002, Rules 61B-22.003 and 61B-22.005, Florida
Administrative Code, were amended to allow associations to establish “pooled”
reserve accounts instead of, or in addition to, individual reserve accounts. This
means that an association may have a single source of funds to pay for multiple
categories of reserve expenses. For example, if an association establishes a
pooled reserve account for roof replacement, building painting and pavement
resurfacing, funds may be drawn from this account to pay for any of the three items.
Prior to the change in the rules associations were required to maintain separate
accounts for each of these items and approval from the membership would be
required in order to use funds from one category to pay for another.
Note: Unit-owner approval is required in order to use pooled funds to pay for any
expenses that are not allocable to the categories included in the pool. Continuing
the prior example, unit-owner approval must be obtained in order to use the pooled
funds to pay for a seawall replacement. Also, a pooled reserve account is not the
same as a general deferred maintenance and capital expenditures account because
the pooled account is restricted to the items specified in the pooled reserve schedule
and a general deferred-maintenance-and-capital-expenditures account may be used
for any items meeting the definition of these two terms. Consequently, a pooled
account may meet the statutory requirements by including the items required by the
law, but a general deferred-maintenance-and-capital-expenditures account is not a
reserve account required by the law because it is not required to be based on any
known expenses at the time the account is established.
Why Establish Reserves?

A Condominium association’s main source of income is assessments (often called
maintenance fees) collected from the unit owners. The primary purpose for
establishing reserves is to spread the cost of major expenditures over the lives of the
assets to be maintained or replaced in order to avoid periodic large assessment
increases or special assessments.
Example:
An association repaints the building every five years. The last time the association
painted the building it cost $20,000. The association funds a painting reserve each
year in the amount of $4,000 in order to avoid making a special assessment of
31
$20,000 every five years. Note that this example excludes factors such as inflation
and interest earnings.
Additionally, reserves add a degree of accountability or control that is not applicable
to operating funds. In other words, there are no restrictions (other than using the
funds to pay for proper common expenses) for operating funds, but reserve funds
may only be spent for the specified purposes unless the unit owners approve a
different use of the funds.
Waiving or Reducing Reserves

While a fully funded reserve schedule, as described in chapter 4, must be included
in the proposed budget, associations may waive the requirement that reserves be
funded or reduce the amount of the proposed funding. It is the board’s responsibility
to include reserves on the proposed budget and to fully fund those reserves that are
not waived or reduced by a vote of the unit owners.
DEFINITION ALERT The term “fully funded” has two meanings: first, it means
that when the proposed budget is provided to the owners,
it must show the amount of money that will be required to ensure that, when the time
comes, sufficient funds will be available for deferred maintenance or a capital
expenditure; and second, it means that, as the association collects assessments
during the year, it must set aside all of the money included in the reserve schedule
section of the budget.
After the proposed budget is provided to the owners (at least 14 days prior to the
budget meeting), vote to waive or reduce the funding of reserves may be taken.
Most condominium documents provide the board with authority to adopt the budget,
but only the unit owners can waive or reduce the reserve funding requirements. It is
helpful to plan the association meetings in such a way that the vote taken to waive or
reduce reserves is taken on the same date as the vote to adopt the budget. Keep in
mind that a vote to waive or reduce reserve funding is only good for one annual
budget. If reserve funding is to be waived for the next annual budget, then another
unit owner vote must be obtained. Also, a vote to waive or reduce the funding of
reserves is not required unless the association intends to waive or reduce the
reserve funding.
Table 3.1 on the next page provides some examples of how to compute the vote to
waive or reduce the funding of reserves. You will note that the table shows the
same requirements for waiving and reducing reserves as for using reserves for
purposes other than intended.
32
Table 3.1 Examples of How to Compute the Vote to Waive or Reduce the Funding of
Reserves
Number of Units As
Stated in Documents 50 100 150
40 units get ½ vote

Assigned Voting each
Interest As Stated in 60 units get 1 vote
Documents 1 per unit each 1 per unit
Quorum Requirement Majority of Total Majority of Total 30 Percent (or .3) of

As Stated in Voting Interests Voting Interests Total Voting
Documents Interests
How To Compute How To Compute
1 vote x 50 units ½ (or .5) vote x 40 How To Compute
= 50 voting interests units 1 vote x 150 units
50 / 2 = 25 = 20 voting = 150 voting
-therefore- interests interests
majority = 26 1 vote x 60 units .3 x 150 = 45
= 60 voting 30% of 150 = 45
interests -therefore-
20 + 60 = 80 45 voting interests
80 / 2 = 40 are required
-therefore-
majority = 40.5
Voting Interests At Least a Majority of At Least a Majority At Least a Majority

Required By Statute the Voting Interests of of
To Waive or Reduce Present At Meeting the Voting Interests the Voting Interests
Reserve Funding Present At Meeting Present At Meeting
How To Compute
Must first establish How To Compute How To Compute
quorum of 26. Must first establish Must first establish
quorum of 40.5. quorum of 45.
If 45 voting interests
are present in If 66 voting If 76 voting interests
person interests are present in
or by limited proxy, are present in person
must get approval of person or by limited proxy,
“just over half” or by limited proxy, must get approval of
of those present. must get approval “just over half”
45 / 2 = 22.50 of of those present.
-therefore- “just over half” = 76 / 2 = 38
majority = 23 of those present. -therefore-
66 / 2 = 33 majority = 39
-therefore-
majority = 33.5
33
What happens if a meeting is called and the owners don’t approve the proposal or a
quorum isn’t established? If either of these occur, the reserves must be fully funded
as outlined in the budget. If the vote to waive or reduce reserves is presented to the
owners, it’s important to remember that this vote is only to waive or reduce the
funding of reserves. The vote does not mean that the disclosures in the budget can
be waived or reduced. Reserve disclosures, as discussed in Chapter 4, must be
included in the proposed budget regardless of whether a vote to waive or reduce
reserves will be taken.
Also, remember that general proxies cannot be used to waive or reduce reserve
funding, and a vote in person or by limited proxy must be used. The limited proxy
used by the association must substantially conform to the Division’s Sample Limited
Proxy Form. This form can be obtained by contacting the Customer Contact Center
at: (850) 488-1122 or email at: callcenter@dbpr.state.fl.us.
NOTE: Subsection 718.112(2)(f)2., F.S., provides that, prior to turnover, the

developer may cast votes to waive or reduce reserve funding during the first two
fiscal years after the declaration is recorded. After that time, the approval of a
majority of non-developer voting interests present at a unit owner meeting must be
obtained. After turnover, the developer may again cast votes to waive or reduce
reserve funding.
NOTE: Multicondominium associations should refer to Rule 61B-22.005(8), F.A.C.,
for procedures on voting to waive or reduce reserve funding.
PRACTICE EXERCISE
Your association has 130 units. The bylaws assign one vote to each unit and provide
that a quorum is a majority of the total voting interests. The board wants to obtain
approval to reduce reserves for this year. Seventy-eight (78) voting interests are
represented at the meeting. How many unit owner votes must be obtained, at a
minimum, to allow the reserve to be waived for the upcoming fiscal year? (Circle one.)
a) 40
b) 65
c) 87
34
Types of Reserves to Establish
Section 718.112(2)(f)2., F.S., provides that associations must establish reserves for
the following capital expenditures and deferred maintenance items:
• Roof Replacement
• Building Painting
• Pavement Resurfacing
• Items Having a Deferred Maintenance Expense or Replacement Cost More
Than $10,000
The proposed budget must include a reserve for each of these items, a pooled
account for all of these items or some combination of individual and pooled reserves.
As mentioned earlier, associations may establish other reserves in addition to those
required by law. To determine whether additional reserves have been established,
you should review prior board meeting minutes, prior budgets, and year-end
financial reports.
Estimating Reserves
Identifying all of the items for which reserve accounts must be established and
obtaining cost and life expectancy estimates can be daunting. For example, you
need to determine which items cost more than $10,000, estimate the total expected
lives, the remaining lives, and how much money the association has already set
aside to replace these items. Accurate estimates are essential to proper reserve
planning. Special assessments often result from poor estimates or failure to
establish reserves for expensive items. Keep in mind that estimates will change
from time to time based upon factors such as weather, damage, original
construction, routine maintenance, location of the property (i.e., inland or on the
coast), and inflation. The board must annually re-evaluate these estimates to
ensure the reserves will be properly funded for the next budget year. The following
steps should be performed each year:
• Take an inventory of the condominium property and evaluate the condition of each
item.
• Examine original plans and specifications.
• Review reports from unit owners about repairs that need to be made.
• Talk to other board members and owners who may have special knowledge about
the condominium.
• Consult professionals such as architects, engineers, contractors, vendors and
suppliers. The board should consider hiring a professional engineer to perform an
analysis of the condition of the facilities at least every three to five years.
35
The following table summarizes this chapter on reserves.
Reserves are monies set aside for Reserves other than deferred
specific purposes. maintenance and capital
expenditures can be established.
Carefully consider the use of reserve
funds and title reserves accordingly in Reserves are established to protect
the proposed budget. the association and prevent
financial hardships by spreading the
cost of large expenditures over a
number of years.
Deferred maintenance is performed
less frequently than yearly and will Reserves must be fully funded
result in maintaining the asset’s useful unless unit owner approval is first
life. obtained to waive or reduce.
Capital expenditures include Reserves required by statute must

purchasing or replacing assets having be included in the proposed budget.
a useful life over one year, or
extending the useful life over one
The association may establish a
year.
reserve pool including two or more
items.
Reserve funds can only be used for Good business judgment should be
purposes intended, unless approval to used when estimating reserves.
use them for other purposes is first
obtained by a unit owner vote.
ANSWER KEY
1) Repairs or maintenance that will be performed less frequently than yearly and will
result in maintaining an asset’s useful life is called DEFERRED MAINTENANCE.
2) Spending reserve funds to purchase or replace an asset with a useful life of more
than one year or to extend the useful life of an asset more than one year is a
CAPITAL EXPENDITURE.
3) ‘B’ is the correct answer. In this example, the board established a reserve only for
capital expenditures related to the swimming pool. The definition of capital
expenditure is any expenditure of funds for the purchase or replacement of an asset
36
whose useful life is greater than one year, or the addition to an asset that extends
the useful life of the previously existing asset for a period greater than one year.
Answer A should not be circled because purchasing chlorine supplies is an
operating expense and should be paid for with operating funds. Answer C should
not be circled because paying to have the pool cleaned is considered to be a routine
maintenance expense. As stated earlier, these types of expenses should come out
of the operating section of the budget.
4) ‘A’ is the correct answer. This reserve account is restricted to replacement of the
golf cart. Responses B. and D. are examples of capital expenditures, but are not
correct answers because they are not expenditures for the replacement of the golf
cart. Responses C and E are not correct because these events are considered
routine maintenance. Expenses for routine or frequent maintenance should come
from the operating section of the budget.
5) ‘A’ is the correct answer. The vote required to waive or reduce the funding of
reserves is the approval of a majority of those present, in person or by limited proxy,
at a unit owner meeting. A majority of the 78 voting interests at the meeting is 40.
37
4 Reserve Schedule
This chapter addresses the preparation of the reserve schedule. Topics that will be
discussed include the schedule’s purpose, required reserve disclosures, and the
computations involved in completing the schedule. The manual presents the
segregated method first, followed by the pooled method. However, associations
may decide to use the segregated method for some reserve items and the pooled
method for others, in which case the proposed budget should contain both
schedules.
What is a Reserve Schedule?

The reserve schedule constitutes the reserve section of the budget, and its purpose
is to disclose reserve information to the unit owners and board members. The
estimates that were discussed in Chapter 3 (how long assets will last, their
remaining useful life, and the cost for deferred maintenance or a capital expenditure)
appear in the reserve schedule.
Regardless of what reserve schedules look like they must all contain the minimum
disclosures required by the Condominium Act and administrative rules.
These disclosures are in important component of the budget. Not just because they
are required, but also because they provide critical information for unit owners and
board members. Among other things, they help everyone know how much future
expenses will cost, when these expenses are going to take place, and how much
money has been set aside for these expenses so far. The reserve schedule also
provides unit owners with information on which to base a decision whether to vote to
waive the reserves.
Reserve Schedule Disclosures

The schedule of deferred maintenance and capital expenditure reserves includes:
1) All required deferred maintenance and capital expenditure reserve items.
2) Estimated total useful life of each of the required items.
3) Estimated remaining useful life of each of the required items.
4) Estimated deferred maintenance or cost of capital expenditure of each of the
required items.
5) Estimated fund balance for each item as of the beginning of the proposed budget
year (end of the current year).
6) The required funding amount for the budget year for each item.
The funding amounts are important because they let everyone know how much
money must be deposited in each reserve account each month or quarter,
depending on whether your association collects assessments monthly or quarterly.
The steps to prepare the reserve schedule are:
38
STEP ONE List All Reserve Items on the Schedule
The first thing to do when preparing the deferred maintenance and capital
expenditure reserve schedule is to list all of the required reserve items. Not only
must you list reserves required by the Condominium Act, but also any other deferred
maintenance and capital expenditure reserve items or any other reserves that the
association would like to fund. For purposes of this manual, we are going to create
a reserve schedule that lists the following reserve items:
• Elevator Repair & Modernization
• Clubhouse Roof Replacement
• Walkway Improvements
In our example, Roof Replacement, Pavement Resurfacing, Building Painting,

and Clubhouse Roof Replacement are required by the Condominium Act to
be listed on the budget. Additionally, Walkway Improvements and Elevator
Repair and Modernization must also be established because, in our example,
it is estimated that the cost of the deferred maintenance or capital expenditure
will be more than $10,000. If in our example, the association had a swimming
pool where the replacement cost was under $10,000, a reserve for this item
would not have to be listed on the schedule unless there was already an
account established by the association. While this manual does not cover
reserves not required by the Condominium Act, if your association wants to
establish reserves for items other than capital expenditures and deferred
maintenance the following information will need to be disclosed in a separate
reserve schedule:
• The name of each item (disclosing the intended use of the funds);
• The estimated balance of each of these reserve items at the beginning of the
proposed budget period; and
• The amount of funds to be set-aside for each of these items in the current budget.
•
STEP TWO Write the Estimated Total Useful Life on the Schedule
Once you’ve listed the appropriate reserve items on the schedule, the next step you
take is to determine the estimated total useful life for each reserve item and to write
the amounts on the schedule.
DEFINITION ALERT The estimated total useful life of a reserve asset is the
total life of a newly purchased asset before deferred
maintenance or a replacement of the item is needed.
The estimate you obtain for each reserve item’s total useful life will be placed in the
first column of the schedule.
39
STEP THREE Write the Estimated Remaining Useful Life on the Schedule
Once you have listed the estimated total useful life for each reserve item, the next
step is to determine each item’s estimated remaining useful life and to write the
amounts on the schedule. The estimate for each reserve item’s remaining useful life
will be placed in the second column of the schedule.
The estimated remaining useful life of a reserve asset

DEFINITION ALERT is the length of time a particular asset has left before
deferred maintenance or a capital expenditure is
needed.
Example
The 1992 engineer’s report given to the association stated that the estimated total
useful life of the roof was 10 years. All subsequent re-evaluations supported the
1992 findings. It is now 2001. Based on this information, the estimated remaining
useful life of the roof is one year. In 2002, a capital expenditure to replace the roof
will probably be needed.
STEP FOUR Write the Costs for Estimated Deferred Maintenance or a Capital
Expenditure on the Schedule
The fourth step you need to take in preparing your schedule is to determine each
item’s estimated cost of deferred maintenance or capital expenditure and to write the
amounts on the schedule. Once the amounts are listed, a total should be provided
at the bottom of the column. Remember that Chapter 3 defined these two terms and
provided guidance on how to obtain these estimates.
STEP FIVE Write the Estimated Fund Balances on the Schedule

The fifth step in preparing the reserve schedule is to identify the estimated fund
balance, as of the beginning of the period for which the budget is being prepared, for
each reserve item and to write these amounts on the schedule.
The estimated fund balance is the amount of money
DEFINITION ALERT that should be in the reserve account.
Note that the information and examples provided for this topic are very basic in
nature. The methods used for determining estimated fund balances may vary based
on the complexity and sophistication of the association’s accounting system. As you
read through this section, assume that there have been no unauthorized transfers or
unauthorized expenditures from the reserves. In addition, keep in mind that the
reserves must be identified separately in the accounting records even if all reserves
are maintained in one bank account. In other words, the accounting records must
be maintained according to good accounting practices.
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Example
Assume that you are working on next year’s budget in October. In order to
determine what the roof reserve’s fund balance will be at the close of business
December 31, you can start by checking the amount of money that was in the roof
reserve at the end of September. Then, add all of the estimated interest and
assessments that should be deposited in the roof reserve based on the current
budget for the months of October, November, and December. Finally, subtract any
expenditures that are anticipated for those three months. This total should give you
the estimated fund balance for the roof reserve as of December 31.
As you identify each reserve’s estimated fund balance, write the amounts in the
“Estimated Fund Balance” column on the schedule and total them.
STEP SIX Compute the Current year funding requirements and Write the
requirements on the Schedule
The sixth step in preparing a reserve schedule is computing the current year funding
requirements. When the proposed budget is given to the unit owners the reserve
schedule must provide for full funding of the reserves.
DEFINITION ALERT The current year funding requirement is the amount of

money that must be deposited in the reserves during
the year. This amount should ensure sufficient funds are available when it’s time to
do the deferred maintenance or a capital expenditure.
Keep in mind that the current year funding requirement is different than the fund
balance. The funding requirement is what must be deposited during the year, and
the fund balance is the amount that should be in the reserve account at any given
time.
The formula for computing the current year funding requirement must take into
account the estimated deferred maintenance or capital expenditure amount,
estimated fund balance, and number of years remaining until deferred maintenance
or a capital expenditure is needed. Since these estimates are part of the formula,
you can see that the current year funding requirement will change from year to year.
So keep in mind that you shouldn’t simply copy the current year funding requirement
from the current budget to the next year’s proposed schedule. The formula is
addressed by rule 61B-22.005(3), F.A.C.
Example, Segregated Method:

Assume that you are preparing next year’s budget (January to December) in
October, the remaining useful life of the roof is 4 years, the estimated cost to replace
the roof is $86,000, and $50,000 should be in the roof reserve when the budget
becomes effective on January 1. To determine the amount that must be deposited
during the proposed budget year, subtract $50,000 from $86,000. The result is
$36,000. Then, you divide this amount by the remaining useful life of 4 years. The
final answer is that $9,000 is the current year funding requirement.
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($86,000 - $50,000) / 4 = $9,000
As the current year funding requirements are computed for each reserve, place them
in the “Current Year Funding Requirement” column on the schedule and total them.
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Figure 4.1 Completed Sample Reserve Schedule Using the Segregated Method
SCHEDULE OF DEFERRED MAINTENANCE &

CAPITAL EXPENDITURE RESERVES
(for the fiscal year of January 1, 2002 through December 31, 2002)
Estimated Estimated Estimated Estimated Funding

Total Remaining Cost for Fund Required for
Reserve Useful Useful Deferred Balance Proposed
Items Life Life Maintenance/ as of Budget
Capital 12-31-01 Period
Expenditure
(in years) (in years) ($) ($) ($)
Roof
Replacement 12 1 $95,000 $87,000 $8,000
Pavement
Resurfacing 18 7 55,000 30,472 3,504
Building
Painting 5 4 92,000 19,968 18,008
Elevator Repair &
Modernization 25 14 20,000 8,800 800
Clubhouse
Roof Replacement 12 1 60,000 57,000 3,000
Walkway
Improvements 10 9 30,000 3,000 3,000
TOTALS $352,000 $206,240 $36,312
NOTE: This schedule is for illustrative purposes only.

NOTE: Multicondominium associations have additional disclosure requirements for
the proposed budget and reserve schedule. Refer to Rule 61B-22.003, F.A.C., for
more information.
In computing the Funding Required for the Proposed Budget Period, you might
come across a situation, usually indicative of a statutory violation, where a reserve
has a negative (less than zero) balance. Negative balances can occur when the
association spent more money than was available for one or more reserve items. To
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compute the current year funding requirement in this type of situation, the
administrative rules require that you make up the deficit in the upcoming year in
addition to funding the replacement cost over the life of the item being replaced or
purchased (the formula discussed above). The negative amount cannot be made up
over the remaining useful life of the roof that was just replaced. The money that is
being deposited during the life of the new roof is to pay for the next time it needs to
be repaired or replaced.
Adjusting the Schedule

Changes will probably occur that will affect the formula you use from year to year.
For example, the board may be given different estimates for life expectancies,
deferred maintenance, capital expenditures, interest and inflation estimates, all of
which will affect the reserve analysis. It is important to remember that when you
compute the current year funding requirement for the proposed budget, you are only
computing it for the year for which the reserve analysis is being prepared.
Preparing the Pooling Schedule

Rule 61B-22.005(3)(b), F.A.C., addresses the method of calculating reserves using
the pooling method. The rule provides that the amount of the current year
contribution should not be less than that required to ensure that the balance on hand
at the beginning of the period when the budget will go into effect plus the projected
annual cash inflows over the estimated remaining lives of the items in the pool are
greater than the estimated cash outflows over the estimated remaining lives of the
items in the pool. The rule prohibits using any type of balloon funding. This method
also requires associations to identify each item to be included in the pool, along with
the estimated cost of replacement or deferred maintenance, and the remaining lives
of each of the items within the pool. The following table 4.2 demonstrates how the
same reserve information shown in the segregated method may be used to create a
pooled reserve account schedule. In order to present the entire pooling analysis on
one page this manual shows the first four columns of the schedule separately, when
you prepare a pooling schedule insert this information into the table.
NOTE: This schedule is for illustrative purposes only and does not represent the
Division’s position regarding the life expectancies or costs of reserve assets.
NOTE: Multicondominium associations have additional disclosure requirements for
the proposed budget and reserve schedule. Refer to Rule 61B-22.003, F.A.C., for
more information.
44
Figure 4.2 Reserve Schedule Using the Pooling Method
Replacement Total Remaining Cost
Item Estimated Life (Yrs)
Life (Yrs)
Roof
Replacement 12 1 $95,000
Pavement
Resurfacing 18 7 $55,000
Building
Painting 5 4 $92,000
Elevator
Repair &
Modernization 25 14 $20,000
Clubhouse
Roof
Replacement 12 1 $60,000
Walkway
Improvements 10 9 $30,000
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Figure 4.2 - Continued Reserve Schedule Using the Pooling Method
Projected Annual Cash Outflows
Replacement Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14
Item
Roof
Replacement 95,000 0 0 0 0 0 0 0 0 0 0 0 95000 0
Pavement
Resurfacing 0 0 0 0 0 0 55,000 0 0 0 0 0 0 0
Building
Painting 0 0 0 92,000 0 0 0 0 92,000 0 0 0 0 92000
Elevator
Repair &
Modernization 0 0 0 0 0 0 0 0 0 0 0 0 0 20000
Clubhouse
Roof
Replacement 60,000 0 0 0 0 0 0 0 0 0 0 0 60000 0
Walkway
Improvements 0 0 0 0 0 0 0 0 30,000 0 0 0 0 0
Total
Projected
Cash
Outflows: (155,000) 0 0 (92,000) 0 0 (55,000) 0 (122,000) 0 0 0 (155,000) (112,000)
Beginning
Cash
Balance: $206,240 $85,866 $120,492 $155,118 $97,744 $132,370 $166,996 $146,622 $181,248 $93,874 $128,500 $163,126 $197,752 $77,378
Annual
Reserve
Requirement: $34,626 $34,626 $34,626 $34,626 $34,626 $34,626 $34,626 $34,626 $34,626 $34,626 $34,626 $34,626 $34,626 $34,626
Ending Cash
Balance: $85,866 $120,492 $155,118 $97,744 $132,370 $166,996 $146,622 $181,248 $93,874 $128,500 $163,126 $197,752 $77,378 $4
46
Pooling Method Reserve Schedule Disclosures
The schedule of deferred maintenance and capital expenditure reserve items for the
pooling method includes the same items that are required for the segregated method
as follows:
All Required Deferred Maintenance and Capital Expenditure Reserve Items.
Estimated Total Useful Life of Each of the Required Items.
Estimated Remaining Useful Life of Each of the Required items.
Estimated Deferred Maintenance or Cost of Capital Expenditure of Each of the
Required Items.
Estimated Total Fund Balance for the Pooled Reserves as of the beginning of the
proposed budget year (end of the current year).
The Required Funding for Proposed Budget Period for the Pooled Reserves.
The required funding for proposed budget period for the pooled reserves is the
annual deposit that will be required, based on the current reserve analysis, in order
to ensure that sufficient funds will be available when the anticipated expenditures
take place.
Hint: Formula driven spreadsheets make it a lot easier to prepare the pooling
method reserve schedule.
The steps to prepare the pooling method reserve schedule are:
STEP ONE List All Reserve Items on the Schedule

The first thing to do when preparing the deferred maintenance and capital
expenditure reserve schedule is to list all of the required reserve items. For
purposes of this manual, we are going to create a reserve schedule that lists the
following reserve items:
• Elevator Repair & Modernization
• Clubhouse Roof Replacement
• Walkway Improvements
In our example, Roof Replacement, Pavement Resurfacing, Building Painting, and

Clubhouse Roof Replacement are required by the Condominium Act to be listed on the
budget. Additionally, Walkway Improvements and Elevator Repair and Modernization
must also be established because, in our example, it is estimated that the cost of the
deferred maintenance or capital expenditure will be more than $10,000.
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STEP TWO Determine the Estimated Total Useful Life of Each Item in the Pool
Once you’ve listed the appropriate reserve items on the schedule, the next step is to
determine the estimated total useful life for each reserve item and disclose the
information on the schedule.
STEP THREE Determine the Estimated Remaining Useful Life of Each Item in the
Pool
Once you have listed the estimated total useful life for each reserve item, the next
step is to determine each item’s estimated remaining useful life and disclose the
information on the schedule.
STEP FOUR Determine the Number of Columns in the Projected Annual Cash
Outflows Section of the Table
Each column in the projected annual cash outflows section of the table represents
one year to be included in the analysis. The analysis must include at least the
number of years (columns) equal to the longest remaining life of any item in the pool.
In this example the longest remaining life is 14 years for the Elevator Modernization.
Therefore, the minimum number of columns required for analysis is 14.
STEP FIVE Enter Costs for Estimated Deferred Maintenance or Capital

Expenditure of Each Item in the Pool
Once you have created sufficient columns in the table determine each item’s
estimated replacement or deferred maintenance cost and write the amounts in the
column reflecting its remaining life. Note that some items may be replaced more
than once during the entire period under analysis. For example, Figure 4.2 shows
that Building Painting will be done at the end of the remaining painting life of 4 years
and will reoccur every 5 years from that date. After the amounts are listed for each
item a total should be provided at the bottom of each column. This total represents
the total projected annual cash outflows from the reserve pool.
STEP SIX Enter the Estimated Beginning Cash Balance for Year 1
The sixth step in preparing the reserve schedule is to determine the estimated fund
balance of the reserve pool, as of the beginning of the period for which the budget is
being prepared. Since the budget is usually prepared in advance of the new year,
this requires an estimate of the amount that will be on hand at the end of the year.
This can be done by determining the reserve pool balance on the date the estimate
is being prepared, adding the monthly or quarterly funding requirement for the
remainder of the year, and subtracting any estimated expenses that will be incurred
during the remainder of the year. Enter this amount in the “Beginning Cash
Balance” cell under Year 1.
Hint: Spreadsheet users create a formula making the Beginning Cash Balance
for each year after year 1 equal to the Ending Cash Balance from the prior
year. The formula for calculating the Ending Cash Balance each year is:
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Beginning Cash Balance less the Total Projected Cash Outflows plus the
Annual Reserve Requirement. Copy this formula to the Ending Cash Balance
cell for each year in the analysis.
STEP SEVEN Compute the Annual Reserve Requirement

The last step in preparing a the pooling reserve schedule is to calculate the Annual
Reserve Requirement. The Annual Reserve Requirement is the minimum annual
deposit that, based on the reserve analysis, will ensure that the reserve pool will not
have a negative Ending Cash Balance.
Note: Figure 4.3 shows a level funding requirement each year during the
analysis. While the rules do not specifically require a level funding
requirement, this method cannot be used to simply fund the amount of
reserves equal to the amount of cash outflows each year. The rules prohibit
ballooning the payments, so the cost of capital expenditures and deferred
maintenance projects must be spread over the life of the reserve items.
How To Fund Reserves
Rule 61B-22.005(6), F.A.C., requires that reserves be funded in a timely manner, at
least as frequently as assessments are due from the owners, such as monthly and
quarterly. This means that if assessments are collected monthly then 1/12 of the
Annual Reserve Requirement must be funded (deposited to the reserve account)
each month.
In addition, rule 61B-22.005(2), F.A.C., states that if operating and reserve
assessments are collected as a single payment, the reserve portion of the payment
must be transferred to the appropriate reserves within 30 calendar days from the
date the payment was deposited in the operating account. The following situations
are intended to illustrate the funding requirements and handling of operating and
reserve funds:
Example:
Assume that the condominium documents require that assessments be collected on
a calendar quarterly basis and reserves have not been waived, and assessments
from unit owners are deposited on January 5, 2004. The association must transfer
the reserve portion of that deposit to the appropriate reserve bank account(s) no
later than February 4, 2004, and one fourth of the annual funding requirement must
be set aside in the reserve account(s) not later than March 31, 2004, even if not all
of the unit owners have made their quarterly payments. In other words reserves are
required to be funded even if some unit owners are delinquent in their payments.
Should your association experience chronic delinquencies it is a good idea to build a
line item into the operating budget in order to ensure adequate cash flow to pay for
all of the operating expenses and fund the reserves.
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PRACTICE EXERCISES
1) In the space below, explain why a reserve schedule must be included in the
proposed budget that is sent to the unit owners.
2) List the six (6) disclosures that are included on a schedule of deferred maintenance
or capital expenditure reserve items.
a)
b)
c)
d)
e)
f)
3) Which of the following must be listed on a deferred maintenance and capital

expenditure reserve schedule? (Circle all that apply.)
a) Building painting.
b) Roof replacement.
c) A reserve for an insurance premium due in three years.
d) Pavement resurfacing.
e) A deferred maintenance item that will cost less than $10,000.
4) Which of the following disclosures are required to be included on the reserve

schedule? (Circle all that apply.)
a) The item’s estimated total deferred maintenance or replacement cost.

b) The appearance of the reserve item.
c) The estimated fund balance.
d) The estimated remaining useful life.
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ANSWER KEY
1) Your experiences may allow you to respond to this question in ways other than that
provided in this manual. The paragraph below provides one response.
Not only are reserve disclosures required by the statute and administrative rules,
they also provide important information to unit owners and board members. The
disclosures assist in making decisions about the funding of reserves, and they
identify how long assets should last before needing deferred maintenance or a
capital expenditure. It is easier for people to make long-term plans when reserve
disclosures are provided.
2) Six disclosures that should be on a deferred maintenance and capital expenditure
reserve schedule include:
a) All deferred maintenance and capital expenditure reserve items.

b) The estimated total useful life.
c) The estimated remaining useful life.
d) The estimated cost for deferred maintenance or a capital expenditure.
e) The estimated fund balance.
f) The current year funding requirement.
3) Items ‘A,’ ‘B,’ and ‘D’ must be listed. Rule 61B-22.003(1)(e), F.A.C., requires that
the budget include a schedule of each deferred maintenance and capital expenditure
reserve item.
4) Items ‘A,’ ‘C,’ and ‘D’ must be included. The formula for computing the current year
funding requirement for deferred maintenance and capital expenditure reserve items
must include these components regardless of whether you use the Segregated
Method or the Pooling Method.
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5 Operating Expenses
This chapter provides information about the operating section of the budget. First,
general budgeting techniques will be discussed, and then, statutory and
administrative rule requirements will be addressed.
The Budget
Think of the budget as being a formal written plan of the association’s projected
expenditures for a given period of time. It’s a very important item that communicates
the board’s plans for the association and significantly affects the operation of the
association. Therefore, it’s vital that the board takes the time to review the
requirements in the statutes and the association’s documents and to apply
appropriate budgeting techniques.
It’s also important that the board understands the importance of establishing an
operating budget that reflects, as closely as possible, the association’s projected
expenses. The board is responsible for administering the affairs of the association
and, by law, has a fiduciary relationship to the unit owners. By definition, a fiduciary
is a person who stands in a special relation of trust, confidence, and responsibility in
his or her obligations to others. If prepared properly, the budget can assist the board
members in fulfilling this obligation. However, it takes careful planning to establish a
budget that will ensure sufficient money is collected from the unit owners to cover all
of the association’s expenses.
The Association’s Accounting Information System

Keep in mind that the accounting system needs to be designed in accordance with
the association’s size and budget. The accounting information system for a very
small association may consist of index cards and a check register. As the size of an
association increases, the level of sophistication of its accounting information system
increases. It’s important that the system be organized and maintained in such a way
so that anyone can look at the records and determine what the revenues and
expenses are for both the operating and reserve funds. You should consult with an
accountant who is knowledgeable about condominium associations to ensure the
system is organized properly and is able to produce the accounting records required
by the Condominium Act and the related administrative rules.
Consider purchasing a general ledger software program that’s user-friendly and
easy to update. It should be designed for condominium associations or easy to
adapt to fund accounting. (Fund accounting will be explained below) The program
should make the process of updating the books faster, easier, and more accurate by
having specific codes assigned to all revenue and expense accounts. Purchasing
this type of software is generally more feasible for medium to large associations that
have numerous monetary transactions. It’s usually more expensive than other
software packages, such as spreadsheet programs, that may be useful for smaller
associations.
52
Updating the books can be quite tedious, especially for medium and large
associations that have numerous general ledger accounts. The software program, if
organized properly, can be a great help in ensuring the records are maintained and
kept up-to-date as they should be.
If the association chooses to keep the books by hand instead of using a computer,
ledger books can be purchased to accomplish this. You can find these at retail or
office supply stores. They come in a variety of formats so you will just need to
examine the ones that are available to see what will work for you.
Example
The Condominium Act requires the association to maintain a current account and a
monthly, bi-monthly, or quarterly statement of the account for each unit designating
the name of the unit owner, the amount of each assessment, the due dates, the
amounts paid upon the account, and the balance due. Assume that the unit owners
are billed for assessments on a quarterly basis. The Subsidiary Accounts
Receivable Ledger for assessments has a separate ledger page for each unit. The
Accounts Receivable Subsidiary Ledger for unit owner Joseph Miller is as follows:
Figure 5.1 Sample Accounts Receivable Subsidiary Ledger
Joseph Miller Unit 210
Date Amount Description Payment Balance

Due Made
1/1/02 $100 First Quarter’s Assessment - $100
1/5/02 - Paid Check Number 2319 $100 $0
3/1/02 $100 Second Quarter’s Assessment - $100
6/1/02 $100 Third Quarter’s Assessment - $100
7/10/02 $200 Special Assessment for Pool - $200

Repair
9/1/02 $100 Fourth Quarter’s Assessment - $100

Consider maintaining a Chart of Accounts. This chart is simply a listing of the titles
and the numbers, or codes, that have been assigned to the ledger accounts. It’s like
an index that helps facilitate the process of entering revenue and expense amounts.
A short explanation next to each of the accounts should be included.
53
Example
The bookkeeper is in the process of posting assessments paid by the owners, and
the amounts paid by the association for utilities and cable. Instead of having to
memorize the different numbers assigned to each ledger account, the bookkeeper
can refer to the Chart of Accounts, locate the ledger account number that
corresponds to each account title (Assessments, Utilities, and Cable), access that
account number in the accounting records, and post the amounts.
Accrual Basis of Accounting and Cash Basis of Accounting

Accrual and cash basis of accounting are discussed in this manual to familiarize you
with the concepts because it’s important that you know what method is being used in
your association.
DEFINITION ALERT The accrual basis of accounting means revenues are

recognized when they are earned and expenses are
recognized when they are incurred, regardless of when cash is received or
disbursed.
Example
Assume that your association receives a bill for pool work performed in June with a
due date for payment in July. Using accrual basis accounting the transaction is
recorded on the books in June even though the payment of cash will not occur until
July.
DEFINITION ALERT The cash basis of accounting recognizes revenues

when received and expenses when paid.
Example
Using the above example, under the cash basis the bill for pool work is recorded on
the books in July instead of June. This is because the actual flow of cash will occur
in July when the bill is paid. The main advantage of the cash basis of accounting is
that it’s a relatively simple method to apply. In very small associations, it may be the
most practical method to use due to its simplicity.
Under the cash basis the results of operations can be manipulated by timing the
payment of bills. The accrual basis is less susceptible to manipulation, but is little
use without a balance sheet to indicate which of the revenues are still outstanding or
which expenses have yet to be paid. Also, the accrual basis is not as straight
forward or intuitive as the cash basis.
Estimating the Association’s Operating Expenses

As discussed in Chapter 2, the main purpose of the operating section of the budget
is to show the categories of expenses (usually called line items) that relate to the
54
day-to-day operation of the association. In addition, it identifies how much money
the board estimates will be spent for each item. This is not a simple process, but it
can be made easier if accurate and complete accounting records are maintained.
Something that must be kept in mind when preparing the budget is that the
association’s main source of income is the maintenance fees or assessments
received from unit owners.
The Condominium Act requires that sufficient funds be collected in advance to pay
all of the anticipated expenses. In other words, the board should not carry out the
day-to-day operations of the association at a deficit or on the basis of special
assessments. (Please refer to the Glossary for the definitions of assessment and
special assessment.)
Associations that budget properly for common expenses can reduce the financial
hardships that special assessments can cause. Not only do special assessments
occur due to insufficient reserve funding, they also occur when the estimated
operating expenses are insufficient. If estimated properly, the budget will help the
association fulfill its obligations, help the board monitor the association’s financial
progress, and help the unit owners understand what is planned for the upcoming
year.
One of the goals in preparing this manual was to identify the basic procedures and
minimum statutory and administrative rule requirements for preparing a proposed
budget. The following ideas are presented to assist you with preparing accurate
estimates for the budget.
Historical Data
The best information about future budgeting estimates can be obtained by
comparing budget versus actual performance from prior years. Start with two to
three years’ worth of historical information. Identify problem-funding areas and
determine why the association was not able to meet its projected budget limits.
Identify trends in income and expenses so these trends can be incorporated into the
proposed budget. For example, if utility costs have been going up approximately
two percent each year, increase the anticipated utility expenditure by two percent.
Also, consider historical inflation rates. Even if past estimates were accurate, new
estimates should be adjusted for inflation.
Look to the future. Ask, “What is anticipated this year that should be incorporated
into the proposed budget?” For example: Is the association involved in litigation in
which expenses are anticipated? Does the association need to hire additional
employees this year? Are increases in taxes or payrolls anticipated? Does
additional insurance need to be purchased for new employees? Is there any
additional day-to-day maintenance that needs to be performed? Does the board
have new plans for the association? Will the cost of any association contracts or
insurance policies be increasing? What is the expected rate of inflation, and what
aspects of the association’s operations will it affect?
55
Involve the community. Remember that communication and unit owner involvement
are important aspects of community living. Give owners the opportunity to be
involved in the budget preparation process. To accomplish this, many associations
establish budget committees that gather information about needed improvements or
maintenance, new state or federal requirements, or enhancements desired by the
community. Pull upon the knowledge and resources of the unit owners, and let them
know their input is valued. If owners are involved in the preparation process, they
will more likely accept and understand the budget and the expenditures required by
the association.
Contents of the Operating Section of the Budget

The minimum requirements for the operating section of the budget are listed on the
following checklist:
PROPOSED BUDGET CHECKLIST - Operating Section
All estimated common expenses or expenditures of the association including but not
limited to the following items:
• Administration of the association;
• Management fees;
• Maintenance;
• Rent for recreational and other commonly used facilities;
• Taxes upon association property;
• Taxes upon leased areas;
• Insurance;
• Security provisions;
• Other expenses;
• Operating capital
• Rent for a unit, if subject to a lease;
• Rent payable by the unit owner directly to the lessor or agent under any recreational
lease or lease for the use of commonly used facilities, which use and payment is a
mandatory condition of ownership and is not included in the common expenses or
assessments for common maintenance paid by the unit owners to the association;
• Fees payable to the division;
• Expenses for a unit owner;
• All estimated common expenses or expenditures stated on an annual basis;
• All estimated expenses shown on a monthly basis;
• Beginning and ending dates of the period covered by the budget; and
• The total assessment for each unit type according to the proportion of ownership on
a monthly basis, or for any other period for which assessments will be due.
NOTE: If the association maintains limited common elements with the cost shared by
only those entitled to use them, a separate schedule or schedules must be attached that
56
contains the same disclosures as in the budget. The schedule(s) must show all
estimated expenses specific to each limited common element including reserves for
deferred maintenance and capital expenditures if applicable.
Tips on Preparing the Budget

One of the most common errors made in preparing the budget is failing to state the
time period covered by the budget. Many associations fail to identify the year to
which the budget applies. This can be a problem for future boards who are trying to
pieces together historical data. Also, while the budget estimates are required to be
presented on an annualized basis, there will be times that a budget will need to be
amended for the remaining portion of a fiscal year, and putting the period covered by
that budget is important in order to ensure that each unit owner was charged and
paid the proper amount of assessments throughout the year. The time period
covered must be a statement of the range of time that the estimated budget will
cover.
You should consider using the same line items in the budget and the year-end
financial report. Using the same line items will make it easier to compare the budget
versus actual performance.
Look in the left-hand column on the sample budget, and locate the line item entitled,
“Reserves.” You will see the main category of Reserves and a listing of the
individual reserve accounts beneath it. In our sample budget, these amounts are
simply transferred from the reserves section of the budget to the operating section.
Please note that the statutes and administrative rules do not require that the
individual reserves be itemized under the main category of Reserves.
Although not required by the statutes and administrative rules, many budgets
contain a revenue section. If the association expects to earn non-assessment
revenues then maintenance fees may be reduced. In our sample budget the
owners’ assessments would have been $195 per month instead of $180 if the non-
assessment revenues had not been included. This is because the full amount of
$372,626 (next to Total Operating Expenses in the bottom right-hand corner) would
have been used to compute the assessments. This is determined by taking the
amount of $372,626 (next to Total Operating Expenses in the bottom right-hand
corner) and subtracting the anticipated non-assessment revenues of $6,120 and
$20,906 for Interest Income and Other Income, respectively (in the upper left-hand
column). The result is $345,600. This amount is the assessment income that is
anticipated for the budget year and can be found next to the line item entitled
Regular Assessments in the upper left-hand column. So, instead of using the larger
amount of $372,626 from Total Operating Expenses to compute assessments, we
are using the lower amount of $345,600. This results in the lower assessment of
$180 per unit.
The budget must identify the total assessment for each unit type, according to the
proportion of ownership, on a monthly basis or for any other period for which
assessments will be due. As you can see in the bottom right-hand corner, the
assessments for each unit are stated on an annual and monthly basis. The reason a
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monthly basis is stated is that, in our sample association, the documents require
assessments to be paid on a monthly basis. If our sample association’s documents
required assessments on a quarterly basis, then the budget would identify the
assessment amount on a quarterly basis. The documents for your association must
be reviewed to determine on what basis assessments are paid.
Budget Line Items Explained

Unit owners and board members are often confused about the meaning of the
required budget line items Operating Capital, Additional Expenses for a Unit Owner,
and Rent for Recreational and Other Commonly Used Facilities. (These line items
can be found in the right-hand column of the sample budget.) Operating capital is
simply a built in surplus for the association. Additional Expenses for a Unit Owner
are not common expenses to be included in the budget. Instead these expense
disclosures notify unit owners of expenses they may incur. These expenses are not
counted as expenses collectible through assessments, and are generally related to
disclosures during developer control of the association. An example of this category
might be maid service that is available on a pay as you want basis, but not a
common expense of the association.
Rent for Recreational and Other Commonly Used Facilities refers to any facility the
association uses but does not own. An example of this could be where a
condominium is part of a large recreation association that operates recreational
facilities serving the condominium unit owners. Since the unit owner pays
assessments directly to the recreation association this expense will not be part of the
condominium assessment, and is included for disclosure purposes.
The following list summarizes the main points of this chapter. Please review this
before proceeding to the practice questions.
• The budget is a formal written plan of the association’s projected expenditures for a
given period of time.
• The association’s accounting system must be organized and maintained in a manner
that will allow anyone to look at the records and determine what the revenues and
expenses are for the operating and reserve funds.
• The accrual basis of accounting means revenues are recognized when they are
earned and expenses are recognized when they are incurred, regardless of when
cash is received or disbursed.
• The cash basis of accounting recognizes revenues when they are received and
expenses when they are paid.
• The main purpose of the operating section of the budget is to show the categories of
expenses (usually called line items) that relate to the day-to-day operation of the
association. In addition, it identifies how much money the board estimates will be
spent for each item.
• The statutes and administrative rules require the operating section of the budget to
contain certain items. See the Budget Checklist - Operating Section, for a list of
these required items.
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6 Assessments
This chapter addresses how to determine each unit’s share of the assessments, the
budget adoption process, what happens when a budget exceeds 115 percent of the
prior year’s assessments, and collection of assessments.
How Do I Compute the Assessments?

Before you can compute the assessments, you must know three things:
1) How assessments are allocated among the units.
2) The number of units in the condominium or cooperative.
3) How often the assessments are to be collected.
The first step is to identify how the assessments are allocated among the units. This
information can be found by referring to the documents. Keep in mind that the law
regarding sharing assessments may change, and your condominium documents
may differ. Since the percentage that you share assessments cannot change
without your approval, this is one of those items in the declaration that cannot be
changed when the law is changed. For condominiums created after April 1, 1992,
the allocation must be based on either an equal fractional basis or the units’ square
footage of the unit relative to the total square footage of all of the units.
The second step identifies the number of units in the condominium. Again, the
documents will provide this information. The number of units is important because
you must have this information for the formula that will be used to compute the
assessments.
The last step before computing the assessments is to determine how often the
assessments are to be collected. The Condominium Act states that assessments
must be made against units not less frequently than quarterly. This just means that
owners must be assessed at least four times a year - not one, two, or three times a
year. The documents, usually the bylaws, should identify the frequency of the
assessments. Look at the sample document language on the next page that sets
forth these three critical pieces of information. (The pertinent language is underlined
and italicized.) Remember that documents are unique. The language you will see
here will likely be different than that of your documents.
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Sample Language from the Declaration of Condominium
Percentage of Ownership of Common Elements: The undivided share in the

Common Elements and Common Surplus, which are appurtenant to each Unit, shall be
computed upon the following basis:
Upon recordation in the county records, each unit shall have an undivided share in
the ownership of the common elements and the common surplus established on an
equal fractional basis. This shall be equal to one/three-hundredths (1/300th). The
interest in the ownership of the Common Elements and the Common Surplus for
each unit shall be ascertained by dividing one (numerator) by the total number of
Units (denominator); the resulting number being the undivided interest expressed in
decimals of ownership of the common elements and the common surplus attributable
to each unit.
Common Expenses and Common Surplus:

Common expenses of the association, as defined hereinabove, shall be shared by all
unit owners in accordance with an undivided share in the ownership of the Common
Elements and the Common Surplus attributable to each Unit, as set forth in the
paragraph above.
Number of Units:
Upon recordation in the county records, there shall be three-hundred (300) units.
Assessments: The assessments shall be collected from the unit owners on a monthly
basis due and payable by the fifth of every month.
In this association, the assessments are allocated on an equal fractional basis of

1/300ths which, in this case, means everyone will pay the same amount in
assessments. You can find this information under the headings “Percentage of
Ownership of Common Elements”, and “Common Expenses and Common Surplus.”
The number of units (300) is very clear in this case. The documents also indicate
that assessments will be collected monthly.
Once you’ve obtained these three bits of information, you’re ready to compute the
assessments. Chapter 5 indicated that the operating section of the budget must
identify the assessments for each type of unit (units with different ownership shares).
Remember that the assessments must be shown on an annual basis as well as for
the time period for which they are due. The formula for calculating the per unit
assessment is as follows:
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Total Operating Expenses - Anticipated Revenues = Total Amount to be Assessed.
The Total Amount to be Assessed x Ownership Share = Total Assessment Per Unit.
Total Assessment Per Unit / Frequency of the Assessment = Periodic Assessment
(Monthly, Quarterly, Etc.).
Once you have computed the annual and periodic assessments for each unit, you
must place them on the operating section of the budget. When this is done, you’ve
fulfilled all of the requirements for preparing the budget! You’ve prepared the
reserve schedule with all necessary disclosures, and included all of the line items
and other disclosures on the operating section of the budget.
Before we begin the discussion of the budget adoption process, please answer the
following questions. The answer key is provided at the end of this chapter.
PRACTICE EXERCISES
1) List the three items that must be identified before assessments can be computed.
a)
b)
c)
2) In the space below, write the formula that can be used to compute the total
assessment per unit.
3) In the space below, write the formula that can be used to compute the periodic
assessment amount.
4) Compute the total assessment per unit and the periodic assessment using the data
below. Write your responses in the spaces provided.
• Assessments are allocated on an equal fractional basis.

• Assessments are collected on a monthly basis.
• Total Operating Expenses are $321,546.
• Anticipated revenues are $23,498.
• There are 180 units.
Total Assessment Per Unit: $________________________
Periodic Assessment: $_____________________________
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The Budget Adoption Process
You’ve completed the process of preparing the proposed budget package, and now
you’re ready to adopt it! The association’s documents should provide for how this is
to be done since it’s not specifically addressed by the Condominium Act. Most
condominium documents provide that the board has the authority to adopt the
budget, but some reserve this responsibility to the unit owners.
Regardless of who ultimately adopts the budget, the Condominium Act contains
specific requirements for presenting the proposed budget to the unit owners. Before
the proposed budget goes out, the board should review it for accuracy one last time
to ensure it contains all of the required disclosures.
Board Approved Budget

The board meeting notice, agenda, and a copy of the proposed budget must be
mailed or hand-delivered to each unit owner at least 14 days prior to the meeting.
The notice must include a statement that assessments will be considered and the
nature of the assessments. In addition, the notice and agenda are to be posted in
the designated location on the property not less than 48 hours prior to the meeting.
To show that the association complied with the 14-day notice, an affidavit must be
executed by the person who provided notice of the meeting, and it must be filed with
the association’s official records.
Unit Owner-approved Budget

The unit owner meeting notice, agenda, and a copy of the proposed budget package
must be mailed or hand-delivered to each unit owner at least 14 days prior to the
meeting. In addition, the notice and agenda are to be posted in the designated
location on the property. If there is no property to post the notice on, the posting
requirement does not apply. To show that the association complied with the 14-day
notice, an affidavit must be executed by the person who provided notice of the
meeting, and it must be filed with the association’s official records.
Communication is a very important aspect of community living. Since the budget is
such a vital part of the operation of the association, the board should use this
opportunity to communicate with the unit owners. Here are some examples of
information that may be included with the proposed budget. They are not required,
but they help unit owners better understand what they are receiving.
• Explain any major projects that are planned for the year and why they need to be
done. In addition, explain large variances from the prior year’s budget, especially if
the association has a column that lists the prior year’s budgeted amounts next to the
proposed amounts.
• Explain hard-to-understand line items.
• If the decision is made to present a vote to the owners to waive or reduce the
funding of reserves, explain what happens when reserves are not fully funded. Unit
owners need to know that, when reserves are funded, they are funding for future
62
expenses. If the funding of reserves is waived or reduced, owners may not realize
that it could result in large special assessments.
• If the decision is made to present the vote to waive or reduce reserve funding,
include a disclosure of what assessments will be with and without reserve funding.
IMPORTANT!!
After the board has given the proposed budget to the unit owners, held a meeting to
adopt the budget, and adopted it, the board must now ensure that the minutes of the
meeting at which the budget was adopted reflect the adoption of the budget, and
that copies of the proposed and adopted budgets are maintained as part of the
financial records of the association.
Budget Exceeds 115 Percent of Prior Year’s Assessments

If a board adopts a budget which increases assessments more than 15 percent over
the prior year’s assessments, the Condominium Act provides that 10 percent of the
voting interests are entitled to petition the board to call a special unit owner meeting
to reconsider and enact a new budget. However, the law states that certain items
should be excluded from the current year and the prior year budgets. These are as
follows:
1) Reserves.
2) Anticipated expenses not expected to be incurred on an annual basis.
3) Assessments for betterments to the property.
After subtracting these three items from both budgets, divide the current year total
assessment by the prior year total assessment. The resulting percentage will tell
you whether the current year budget is more than 115 percent of the prior year
budget (15 percent increase). The following examples illustrate this calculation:
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Figure 6.1 Budget Increase Does Not Exceed 115% of Prior Year’s
Assessments
2002 2003 Budgeted
Assessments Assessments
$140,646 $158,482
SUBTRACT: Reserves $5,000 $7,008
SUBTRACT: Anticipated
expenses not expected to be 0 5001
incurred on an annual basis
SUBTRACT: Assessments for

betterments to the property 7502 1,5002
TOTALS $134,896 $149,474
149,474 / 134,896 = 111%
NOTES
1
The city notified the association that a local ordinance was passed requiring a
sidewalk to be installed on a portion of the property. The association will be charged
$500 for this installation. This will not be a continuing charge.
2
The association approved the installation of two lobby fountains, one that was built
in 2002 and another to be built in 2003. The budgeted expenses were $750 and
$1,500, respectively.
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Figure 6.2 Budget Increase Exceeds 115% of Prior Year’s Assessments
2002 2003 Budgeted
$150,454 $182,684
SUBTRACT: Reserves $4,500 $8,000
SUBTRACT: Anticipated
expenses not expected to be 5001 8001
incurred on an annual basis
SUBTRACT: Assessments for

betterments to the property 1,0002 1,0002
TOTALS $144,454 $172,884
172,884 / 144,454 = 120%
NOTES
1
The city notified the association that local ordinances had been passed. In 2002, a
sidewalk was required to be installed on a portion of the property. In 2003, a fence
was required to be built around the pool. The owners will be charged $500 and
$800 respectively for these installations. They will not be continuing charges.
2
The association approved the installation of two fountains, one that was built in
2002 and another to be built in 2003. The resulting special assessments are $1,000
each.
In the first example, since the percentage increase is not more than 15 percent, the
unit owners would not be entitled to petition the board for a special budget meeting.
In the second example, the percentage increase is greater than 15 percent thus
entitling 10 percent of the voting interests to petition the board for a special unit
owner meeting.
If the budgeted assessments exceed 115 percent of the prior year assessments (15
percent increase) and the board is petitioned by at least 10 percent of the voting
interests within 21 days after the board’s adoption of the budget, the board must call
a special unit owner meeting within 60 days after the board’s adoption of the budget,
providing at least 14 days’ written notice of the special meeting to each unit owner.
Example
Assume that the board adopted the budget on October 1, and a valid petition
requesting a special budget meeting was received on October 10. In this case, the
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board must hold the meeting no later than November 30. If the board decides to
hold the meeting on October 30, the board must provide notice of the meeting no
later than October 16. In order to adopt a new budget at this special unit owner
meeting, the approval of a majority of all of the voting interests must be obtained,
unless the bylaws require a larger vote. The vote may be in person or by limited
proxy. If the new budget is adopted, it will go into effect. If a meeting is called and a
quorum is not attained or a substitute budget is not adopted, the budget originally
adopted by the board will go into effect.
NOTE: If the developer is still in control of the board, the board may not impose an
assessment for any year greater than 115 percent of the prior year’s assessment
without the approval of a majority of all of the voting interests, including those of the
developer.
PRACTICE EXERCISES
5) The board of administration has the authority to adopt the annual budget, but they
are silent with regard to noticing the budget meeting. The board has scheduled a
meeting for November 21 at which the proposed budget is to be adopted. According
to the Condominium Act by what date must the proposed budget be mailed or hand-
delivered to the unit owners? (Circle one.)
a) November 8
b) November 7
c) October 22
6) (A calculator may be needed for this question.) Using the data provided below, your
goals are to determine the percentage by which the budgeted assessments for 2003
exceed assessments in 2002, and whether the unit owners are entitled to petition
the board for a special unit owner meeting to reconsider the budget. First, use the
dollar amounts in the 2002 and 2003 columns to compute the amounts that will be
used to determine the percentage, and write the resulting figures in the shaded area.
Then, answer the two questions at the bottom of the page.
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2002 2003 Budgeted
$132,478 $155,689
Reserves $6,376 $10,296
Anticipated expenses not expected to $7501 $5001

be incurred on an annual basis
Assessments for betterments to the $1,2002 $1,2002

property
TOTALS $ $
NOTES
1
Both years, the city notified the association that local ordinances had been passed.
In 2002, a sidewalk was required to be installed on a portion of the property. In
2003, a fence was required to be built around the pool. The owners will be charged
$750 and $500 respectively for these installations. They will not be continuing
charges.
2
The association approved the installation of two fountains, one that was built in
2002 and another to be built in 2003. The resulting special assessments are $1,200
each.
a) Resulting Percentage: %
b) Are Owners Entitled To Petition the Board (Circle one.): Yes No
Collection of Assessments
What happens when some of the owners don’t pay their proportionate share of
assessments? When unit owners are delinquent in their assessments, it creates a
financial hardship on the association. Not only are additional expenses incurred due
to legal and processing fees, but the cash flow requirements of the association must
be met by the other unit owners.
The board should review the association’s documents relating to the collection of
assessments. If the delinquent assessments are not likely to be collected any time
soon it may be a good idea to create a line item in the budget for bad debt
expenses. The authority for collection and the requirement that unit owners pay
assessments are clearly stated in the Condominium Act. The owners must pay their
67
share of assessments and cannot avoid payment by waiving the use or enjoyment of
the property or by abandoning their unit. In addition, no owner may be excused from
paying his or her share of the assessments unless all unit owners are likewise
proportionately excused. For example, the fact that an owner does not feel like the
board is maintaining the property does not create excuse the unit owner from paying
the assessments. The board should obtain competent legal assistance in
developing collection procedures and collection of the assessments. [See section
718.116, F.S.]
The information below summarizes the main points covered in Chapter 6.
• Before you can compute the assessments, you must know three things:
1. How assessments are allocated among the units;
• The total amount to be assessed; and
• How often the assessments are to be made.
• The three types of information listed above can be found in the documents.
• The formula that can be used to obtain the total assessment per unit is:
(Total operating expenses - anticipated revenues) X ownership percentage
• The formula that can be used to obtain the periodic assessment amount is:
Total Assessment Per Unit / Frequency of the Assessment
• The Condominium Act requires the association to mail or hand-deliver the proposed
budget package to the unit owners at least 14 days prior to the meeting at which the
budget will be considered for adoption.
• If the board adopts a budget that exceeds 115 percent of the prior year’s
assessments, a special meeting of the unit owners to consider an alternate budget
must be called if at least 10 percent of the voting interests petition the board.
• In determining whether a budget increases the prior year’s assessments by more
than 115 percent, you must deduct three items from the total budgeted expenses for
the current year and the prior year: (1) reserves, (2) anticipated expenses not
expected to be incurred on an annual basis, and (3) assessments for betterments to
the property.
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ANSWER KEY
1) The three items that must be identified before the assessments can be computed
are the following:
a) How assessments are allocated among the units.
b) The total amount to be assessed.
c) How often the assessments are to be made.
2) The formula for calculating the total assessment per unit is:
(Total operating expenses - anticipated revenues) X ownership percentage.

3) The formula to calculate the periodic assessment amount is:
Total Assessment Per Unit / Frequency of the Assessment
4) Since the documents in our question do not contain a provision that requires more
notice than the Condominium and Cooperative Acts, the noticing requirements in the
statutes are followed. They state that the proposed budget package must be mailed
or hand-delivered not less than 14 days prior to the budget meeting. Therefore, the
answer to our question is no later than November 7. To determine the appropriate
date, begin counting backwards starting with the day prior to the date of the meeting.
In this case, you will start with “one” on November 20, and when you get to “14,” that
will be the date by which the budget packages must be mailed or hand-delivered.
5) Your responses should be as follows:
a) The response for Part A is 116 percent.

b) The response for Part B is “YES.”
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7 Review
This chapter provides a complete synopsis of the steps involved in preparing and
disseminating the reserve schedule and operating section of the budget. In addition,
you are given an opportunity to assess your level of knowledge in this area.
Synopsis
The following summary of the topics covered in this manual addresses the statutory
and administrative rule procedures related to preparing and disseminating the
reserve schedule and operating section of the proposed budget. Other activities
incidental to this process such as naming the reserve accounts with specificity,
applying general budgeting techniques, and knowing the vote required to waive or
reduce reserves are not included.
1) Notices of board and committee meetings held to develop the proposed budget
must be posted in a conspicuous location at least 48 hours prior to the meeting.
The notice must include the date, time, and location of the meeting and an
agenda. If there is no property to post the notice on, it must be mailed or
delivered to the unit owners at least 14 days before the meeting. (Chapter 1)
2) There are two main sections of the budget - operating and reserve. The
operating section identifies the line items that relate to the day-to-day operation
of the association. The reserve section contains items that are restricted for
specific purposes, unless unit owner approval is first obtained. (Chapter 2)
3) The association must have, at a minimum, a reserve for roof replacement,
building painting, pavement resurfacing, and items having a deferred
maintenance expense or replacement cost over $10,000. (Chapter 3)
4) A reserve schedule must be prepared that lists each of the deferred
maintenance and capital expenditure reserve items required by statute, your
condominium documents or your association. The steps for preparing the
schedule are listed below. (Chapter 4)
(a) List all deferred maintenance and capital expenditure reserve items on the
schedule.
(b) Write the estimated total useful life of each reserve item on the schedule
in the column “Estimated Total Useful Life.”
(c) Write each reserve item’s estimated remaining useful life in the column
“estimated Remaining Useful Life.”
(d) Write each reserve items estimated cost for deferred maintenance or a
capital expenditure in the column “Estimated Cost for Deferred
Maintenance or a Capital Expenditure.” Total the amounts.
(e) Determine the estimated fund balance for each reserve, and write the
answer in the “Estimated Fund Balance” column. Total the amounts.
(f) Compute the current year funding requirement for each reserve item, and
place the amount in the “Current Year Funding Requirement” column.
Total the amounts.
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5) The formula for computing the current year funding requirement for each reserve
Item is as follows: (Chapter 4)
(Estimated cost - estimated fund balance) divided by the remaining useful life.
6) The operating section of the budget must contain certain disclosures. Please refer
to the “Budget Checklist - Operating Section” on page 52 for a list of these
disclosures. (Chapter 5)
7) Once all of the expenses for the operating section of the budget have been
estimated, the total assessment per unit can be computed. The formula for
computing the total assessment per unit is as follows: (Chapter 6)
Total Operating Expenses - Anticipated Revenues X Ownership Interest.
8) Once the total assessment per unit is determined, the periodic assessment amount
can be computed. The formula is as follows: (Chapter 6)
Annual Assessment per Unit / Frequency of the Assessment.
9) When the proposed budget is finalized and ready to go out to the owners, the board
must ensure proper notice is given of the meeting at which the budget will be
considered for adoption. (Chapter 6)
10) The board must ensure that the minutes of the board or unit owner meeting at which
the budget was adopted reflect the adoption of the budget. In addition, the board
must ensure that copies of the proposed and adopted budgets are maintained as
part of the financial records of the association. (Chapter 6)
BOARD APPROVED BUDGET: The meeting notice, agenda, and a copy of the
proposed budget must be mailed or hand-delivered to each unit owner at least 14 days
prior to the meeting. An affidavit attesting that the association complied with the 14-day
notice must be executed by the person who provided notice of the meeting. The
affidavit must be maintained with the association’s official records.
UNIT OWNER APPROVED BUDGET: The meeting notice, agenda, and a copy of the
proposed package must be mailed or hand-delivered to each unit owner at least 14
days prior to the meeting. In addition, the notice and agenda are to be posted in the
designated location on the property. If there is no property to post the notice on, the
posting requirement does not apply. An affidavit attesting that the association complied
with the 14-day notice must be executed by the person who provided notice of the
meeting. The affidavit must be maintained with the association’s official records.
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FINAL PRACTICE EXERCISES
1) You’re responsible for noticing the first of several board meetings that will be held to
develop the proposed budget. You proceed to read the bylaws and discover that
they don’t address the time frame for noticing the meeting. How much time prior to
the board meeting does the statute require you to post the notice? (Circle one.)
a) At least 24 hours prior.

b) At least 72 hours prior.
c) At least 48 hours prior.
d) This isn’t addressed anywhere.
2) The documents for your association state that board and committee meetings must
be noticed at least 24 hours prior to the meeting. As secretary of the association,
you are responsible for providing proper notice of the upcoming committee meeting
at which the proposed budget is to be developed. The proper time frame for
noticing the committee meeting is: (Circle one.)
a) At least 24 hours prior to the meeting.

b) At least 48 hours prior to the meeting.
c) At least 14 days prior to the meeting
3) (Complete the sentence.) The budget is divided into two main sections -
& .
4) In the space below, describe the main difference between how funds can be used
that are identified with the operating section of the budget versus those identified
with the reserves section of the budget.
5) The board of your association has decided to begin saving money for the insurance
premium that will be due in three years. They want to ensure that there will be
enough money to make this payment by not accidentally spending it for day-to-day
expenses. What could the board do in this case? (Circle one.)
a) Create a line item entitled, “Insurance Premium” in the operating section of

the budget, and put the money with the operating funds.
b) Create a line item entitled, “Insurance Premium” in the reserves section of the
budget, and put the money with the reserve funds.
72
6) The Condominium Act requires associations to establish, at a minimum, certain
deferred maintenance and capital expenditure reserves. In the spaces provided, list
the required reserves.
a)
b)
c)
d)
7) Your association has a swimming pool that costs approximately $8,000 to replace.
The board decides to set aside funds as a reserve in the event deferred
maintenance or a capital expenditure is needed for the pool. Where must this
reserve be disclosed? (Circle one.)
a) It doesn’t have to be disclosed anywhere because it’s a deferred maintenance

and capital expenditure reserve item that’s under $10,000.
b) It should be disclosed in the reserves section of the budget on the schedule of
required deferred maintenance and capital expenditure items.
c) It should be disclosed as an “other” reserve in the reserves section of the budget.
8) Assume that it is October, and you’re preparing the proposed budget. It has been
determined that the estimated cost to replace the roof in five (5) years is $86,000.
You estimate that $64,325 should be in the roof replacement reserve on December
31. Use the Straight-Line Method to compute the current year funding requirement
for the roof replacement reserve.
9) Due to a recent storms the clubhouse roof sustained extensive damage. The cost
to replace it exceeded the balance of the clubhouse roof replacement reserve by
$6,000. The clubhouse roof has been replaced, and you’re responsible for
preparing next year’s proposed budget. The roof is expected to last 15 years and
have a replacement cost of $91,000. Use this data and the Straight-Line Method to
compute the current year funding requirement for the clubhouse roof reserve.
10) Assume that assessments are allocated on an equal fractional basis and that there
are 135 units. The bylaws state the assessments are collected on a monthly basis.
total estimated operating expenses amount to $361,532. The estimated non-
assessment revenues are $21,269. Compute the total assessment and periodic
assessment per unit.
Total Assessment per Unit: $_____________________________
Periodic Assessment Amount: $___________________________
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11) Your association’s documents state that the board of administration has the authority
to adopt the annual budget; however, they are silent with regard to noticing the
budget meeting. The board has scheduled a meeting for October 31 at which the
proposed budget is to be adopted. According to the Condominium Act, by what date
must the proposed budget be mailed or hand-delivered to the unit owners?
(Circle one.)
a) October 17
b) October 18
c) October 1
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ANSWER KEY
1) C. A budget must be noticed at least 48 continuous hours prior to the meeting. The
notice must be posted conspicuously on the property with an agenda.
2) B. You will post the notice at least 48 hours prior to the meeting because the statute
specifies a longer notice period.
The budget is divided into two main sections - OPERATING and RESERVE.
4) Although your response may be worded differently than the paragraph below, it
should have essentially indicated the following:
The operating section of the budget identifies the line items that relate to the day-
to-day operation of the association. The reserves section contains items that are
restricted for specific purposes. Any funds that are a part of the reserve section
can only be used for the purpose intended, unless the proper unit owner vote is
first obtained.
5) B. Since the board wants to ensure that funds will be available in three years to pay
for the insurance premium, and reserves must be set aside and used for the purpose
intended, the board could create a line item for this in the reserves section.
6) Your response should have included the following four items:
a) Roof Replacement.
b) Building Painting.
c) Pavement Resurfacing.
d) Items having a deferred maintenance expense or replacement cost over
$10,000.
7) C. According to the administrative rules, deferred maintenance and capital

expenditure reserve items that are not required by the Condominium Act should be
disclosed in the “other reserves” section of the reserve schedule.
8) The current year funding requirement for this scenario is $4,335. This amount was
determined as follows: ($86,000 - $64,325) / 5 = $4,335.
9) The current year funding requirement for this scenario is $12,067. This amount was
determined as follows: (($91,000 - $0) / 15) + $6,000.) = $12,067.
10) The total assessment per unit is $2,520, and the periodic assessment amount is
$210 per month. These were determined as follows:
($361,532 - $21,269) / 135 = $2,520.
$2,520 / 12 Months = $210 per Month.
75
11) Since the documents in our question do not contain a provision that requires more
notice than the Condominium Act, the noticing requirements in the statutes are
followed. They state that the proposed budget package must be mailed or hand-
delivered not less than 14 days prior to the budget meeting. Therefore, the answer
is no later than October 17. To determine the appropriate date, begin counting
backwards starting with the day prior to the date of the meeting. In this case, you
will start with “one” on October 30, and when you get to “14,” that will be the date by
which the budget must be mailed or hand-delivered.
Conclusion
You have concluded your training on the basic procedures and minimum statutory
and administrative rule requirements for preparing a budget and reserve schedule of
deferred maintenance and capital expenditure reserve items. You should now be
able to prepare your association budget and be able to identify missing components
in budgets and reserve schedules.
76
Appendices
PROPOSED BUDGET CHECKLIST - Operating Section
All estimated common expenses or expenditures of the association including but not
limited to the following items:
• Administration of the association.
• Management fees.
• Maintenance.
• Rent for recreational and other commonly used facilities.
• Taxes upon association property.
• Taxes upon leased areas.
• Insurance
• Security provisions.
• Other expenses.
• Operating capital.
• Rent for a unit, If subject to a lease.
• Rent payable by the unit owner directly to the lessor or agent under any recreational
lease or lease for the use of commonly used facilities, which use and payment Is a
mandatory condition of ownership and is not included in the common expenses or
assessments for common maintenance paid by the unit owners to the association.
• Fees payable to the division.
• Expenses for a unit owner.
• All estimated common expenses or expenditures stated on an annual basis.
• All estimated expenses shown on a monthly basis.
• Beginning and ending dates of the period covered by the budget.
• The total assessment for each unit type according to the proportion of ownership on
a monthly basis, or for any other period for which assessments will be due.
NOTE: After turnover of control of the association to the unit owners, if any of these
expenses are not applicable they do not need to be included on the budget. If the
association maintains limited common elements with the cost shared by only those
entitled to use them, a separate schedule or schedules must be attached that contains
the same disclosures as in the budget. The schedule(s) must show all estimated
expenses specific to each limited common element, including reserves for deferred
maintenance and capital expenditures, if applicable.
77
Sample Budget For the Fiscal Year January 1, 2002 through December 31,
2002
Sample Operating Section of the Proposed Budget

For the Fiscal Year January 1, 2002 through December 31, 2002
REVENUES
Assessment Income: $345,600
Interest Income:
Operating Account $3,510
Savings Account 2,610
Total: 6,120
Other Income:
Miscellaneous $108
Drinks 4,800
Fax 250
Laundry 9,640
Snacks 600
Games 5,508
Total: $20,906
TOTAL REVENUES $372,626
Reserves:
Roof Replacement $8,000
Pavement Resurfacing 3,504
Building Painting 18,008
Elevators 800
Clubhouse 3,000
Walkways 3,000
Total $36,312
Administration:
Accounting $5,004
Bad Debt 1,054

Annual Condominium Fee 640
Annual Corporate Fee 62
Insurance (D&O, Fidelity, Flood, P&C) 32,004
Legal 804
Licenses and Taxes
Licenses 504
County 144
State 804
Management Fees 6,000
Office Supplies 2,400
Postage 660
Total $50,080
78
Salaries:
Casual Labor $204
Maintenance Staff 80,012
Payroll Taxes 15,004
Worker’s Compensation 17,600
Total $112,820
Maintenance and Repair:

Buildings $8,004
Elevators 4,000
Fire Systems 3,000
Grounds 7,008
Supplies and Tools 8,008
Swimming Pool 6,408
Tennis Courts 660
Laundry 5,000
Miscellaneous 504
Total $42,592
Utilities:
Electricity $23,004
Pest Control 4,008
Sanitation 14,004
Sewer 28,500
Telephone 1,404
Water 12,504
Total $83,424
Vending:
Drinks $2,000
Fax 120
Soap Products 3,000
Snacks 360
Games 120
Total $5,600
Other Expenses:
Security $25,008
Rent for Recreational / Other 0
Taxes on Association Property 0
Taxes on Leased Areas 0
Operating Capital
Special Enhancements 7,250
Contingency 9,540
Total $41,798
79
ADDITIONAL EXPENSES FOR A UNIT OWNER
Rent For Unit Subject To Lease 0
Rent Payable by Owner Directly to Lessor 0
Under Recreational Lease / Lease for 0
Total $0
EXPENSES FOR ASSOCIATION & CONDOMINIUM
MONTHLY OPERATING EXPENSES $31,052

NET INCOME (LOSS) $0
ASSESSMENTS FOR EACH UNIT (160 units)

Annual $2,158
Monthly $180
OPERATING EXPENSES (w/o reserves) $336,314

TOTAL OPERATING EXPENSES $372,626
PROPOSED BUDGET CHECKLIST - Reserves Section
• The following items must be disclosed on the schedule of deferred maintenance and
capital expenditure reserves required by the Condominium Act or the association:
•
• All deferred maintenance and capital expenditure reserve items;
• Estimated total useful life of each deferred maintenance and capital expenditure
item;
• Estimated remaining useful life of each deferred maintenance and capital
expenditure item;
• Estimated costs for each deferred maintenance or capital expenditure item;
• Estimated fund balance as of the beginning of the proposed budgeting period (end
of the current year) for each deferred maintenance and capital expenditure item; and
• Funding required for the proposed budget period for each deferred maintenance and
capital expenditure item.
Additionally, the following must be disclosed for any non-deferred maintenance and
capital expenditure reserve item maintained or proposed by the association:
• The intended use of the restricted funds; and

• Estimated fund balance as of the beginning of the proposed budgeting period (end
of the current year).
80
REFERENCES
The Condominium Act, Chapter 718, Florida Statutes (F.S.)

Subsection 718.103(1)
Subsection 718.104(4)(f)
Subsection 718.111(12),(15)
Subsection 718.112(2)(b),(c),(d),(e),(f),(g)
Subsection 718.116(1)(a)
Subsection 718.116(2),(9)(a)
The Florida Administrative Code Rules (F.A.C.)

Rule 61B-22.001
Rule 61B-22.002
Rule 61B-22.003
Rule 61B-22.005
GLOSSARY
Section 718.111(12)(a)11., and any other records that identify, measure, record, and /
or communicate financial information whether the records are maintained electronically
or otherwise. [Rule 61B-22.001(1)]
ACCRUAL BASIS This basis of accounting recognizes revenues and expenses are
when they are earned and incurred, regardless of when cash is received or disbursed.
(Compare with Cash Basis.)
ADMINISTRATIVE RULES These implement, interpret, and enforce the provisions of

the statutes. The Florida Administrative Code (F.A.C.) that correspond to the
Condominium Act include Chapters 61B-15 through 61B-24, F.A.C.
ARTICLES OF INCORPORATION This document creates the corporate entity that

operates the condominium or cooperative. It contains information about the corporation
such as the number of directors and officers, and their powers and duties.
ASSESSMENT A unit owner’s share of money that’s paid to the association. One unit
owner’s share will be combined with other unit owners’ shares to pay the common
expenses of the association. 718.103(1)
ASSOCIATION This is the entity that operates the condominium. 718.103(2)
ASSOCIATION PROPERTY This is property, real and personal, that’s owned or

leased by, or is dedicated by a recorded plat to, the condominium association for the
use and benefit of its members. [718.103(3)]
81
BOARD MEETING This means any gathering of the members of the board of
directors, at which a quorum of the members is present, for the purpose of conducting
association business. [Rule 61B-23.001(1)(a)]
BUDGET This is a formal plan that itemizes the association’s projected expenditures
for the fiscal year.
BYLAWS A condominium association document that addresses the operational

aspects of the association such as meeting notice requirements and budgeting
information. [718.103(5)]
CAPITAL EXPENDITURE Any expenditure of funds for the purchase or replacement

of an asset whose useful life is greater than one year, or the repair or addition to an
asset that extends the useful life of the previously existing asset for a period greater
than one year. [Rule 61B-22.001(2)]
CASH BASIS This basis of accounting recognizes revenues when they are received,
and expenses when they are paid. (Compare with Accrual Basis.)
CHART OF ACCOUNTS This is a listing of the titles and the number codes that have
been assigned to the general ledger accounts. It’s like an index that helps facilitate the
process of entering revenue and expense amounts to the accounting records.
COMMITTEE A group appointed by the board or a member of the board to take action
on behalf of the board or to make recommendations to the board regarding association
matters. [718.103(6)]
COMMITTEE MEETING Any gathering of a committee at which a quorum of the

members of that committee is present. [Rule 61B-23.001(1)(b)]
COMMON ELEMENTS The portions of the condominium property that are not
included in the units. [718.103(7)]
COMMON EXPENSES All expenses and assessments that are properly incurred by
the association in the performance of its duties. [718.103(8)]
COMMON SURPLUS This means the cumulative excess of revenues over expenses.
[718.103(9)]
CONDOMINIUM DOCUMENTS For purposes of this manual, condominium documents

include the declaration of condominium, articles of incorporation, bylaws, and attached
exhibits.
CONDOMINIUM PARCEL A unit, together with the undivided share in the common
elements which is appurtenant to a unit. [718.103(11)]
82
DECLARATION OF CONDOMINIUM This document creates the condominium when it
is recorded in the county where the condominium is located. It contains information
such as the unit owners’ percentages or proportions of and manner of sharing common
expenses and owning common surplus. [718.103(14)]
DEFERRED MAINTENANCE Any maintenance or repair that will be performed less

frequently than yearly, and will result in maintaining the useful life of an asset. [Rule
61B-22.001(3)]
ESTIMATED FUND BALANCE This is the amount of money that should be in the
reserve account at any given time.
ESTIMATED REMAINING USEFUL LIFE This is the length of time a particular asset
has left before deferred maintenance or a capital expenditure is needed.
ESTIMATED TOTAL USEFUL LIFE This is the length of time a particular asset should
last before deferred maintenance or a capital expenditure is needed.
FISCAL YEAR An accounting period of 12 months, usually the calendar year.
FULLY FUNDED This means that when the budget is provided to the owners, it will
show the amount of money that must deposited that year for each reserve item to
ensure that, when the time comes, sufficient funds will be available for deferred
maintenance or a capital expenditure.
FUND ACCOUNTING This is an accounting method appropriate for tracking restricted

accounts such as reserves.
GOOD ACCOUNTING PRACTICES This requires that accounting records to be

maintained in sufficient detail so that when someone inspects them, that person will be
able to determine the association’s revenues, expenses, assets and liabilities. It also
suggests that controls need to be in place to protect the financial assets of the
association.
LIMITED COMMON ELEMENTS Common elements that are reserved for the use of a
certain condominium unit or units to the exclusion of other units, as specified in the
declaration of condominium. [718.103(17)]
LIMITED PROXY (See Proxy.)
LINE ITEMS Categories of expenses that are listed on the budget.
MULTICONDOMINIUM This is a condominium that is part of or included within a

development which contains more than one condominium operated by a single
association. [Rule 61B-15.0001(1)]
83
MULTICONDOMINIUM ASSOCIATION This is a condominium association that
operates more than one condominium.
PROXY A proxy, whether general or limited, is a form unit owners can use if they
cannot, or choose not to, personally attend a unit owner meeting. A limited proxy limits
the decision-making power of the person to whom the proxy is assigned (a proxy
holder). The unit owner uses the limited proxy to direct the proxy holder on how to vote
for a particular issue.
QUORUM The minimum number of voting interests that must be present for a meeting
to be held. The documents should identify the quorum requirement for board,
committee, and unit owner meetings. Members at unit owner meetings can be
represented in person or by proxy.
RESERVES Funds, other than operating funds, that are restricted as to use by the
statutes, the condominium documents or by the association. [Rule 61B-22.001(5)]
REVENUE Income, or settlement of liabilities, related to the operation of the

association.
SPECIAL ASSESSMENT This is any assessment levied against unit owners other
than the assessment required by the adopted budget. [718.103(21)]
TURNOVER This is when the developer transfers control to the non-developer unit
owners. [Rule 61B-22.001(6)]
UNIT OWNER This is the record owner of legal title to a condominium parcel.
[718.103(25)]
VOTING INTEREST The voting rights distributed to the association members as

described in the documents. [718.103(27)]
84

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What is the purpose of developing a budget for a condominium association?

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What are some important terms related to condominium association budgets and reserves?

What are some important terms related to condominium association budgets and reserves?

DIVISION OF FLORIDA CONDOMINIUMS, TIMESHARES,

AND MOBILE HOMES

BUDGETS & RESERVE SCHEDULES

1940 NORTH MONROE STREET, NORTHWOOD CENTRE , TALLAHASSEE, FLORIDA 32399-1032

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

Table 1.1 Summary of Chapter 1 11

Teaches Concepts in Sequence.

Based Upon Statutes and Administrative Rules.

Is This Manual For You?

Suggestions For Improvement?

About Accounting Records

NOTE: Multicondominium associations must maintain separate accounting records

Good Accounting Practices

Providing Access to Accounting Records

Table 1.1 Summary of Chapter 1

Records Retained for at Least Seven

CANASTA CONDOMINIUM ASSOCIATION, INC.

Proof of Meeting Notice

Approval of Minutes of March 5, 2002

Old Business - Refinish Swimming Pool

Development of the 2003 / 2004 Operating Budget

New Business – Hurricane Shutters

Set Date of Follow-up Meeting

CANASTA CONDOMINIUM ASSOCIATION, INC.

TO: All Unit Owners / Residents

ITEMS with an X ARE MISSING

2) Identify the information that must be on the committee’s meeting notices.

a) Post the notice 24 hours prior to the meeting.

4) Complete the following sentence.

The accounting records must be maintained in and kept for at

a) Private records are not accessible by unit owners.

2) Notices of board or committee meetings held to develop a proposed budget package

a) Date of the meeting.

4) The sentence should have been completed as follows:

Sections of the Budget

Use of Reserves for Other Purposes

1) The number of units in the condominium.

Assume, for this example, a condominium has 100 units.

Investing Association Funds

Budget Is Divided Into Two Operating and Reserve Funds Cannot

Money In Operating Section Is

Money in Reserves Section is Fiscal Year = Accounting Period of

Unit Owners Must Approve

Bad Debt 1,054

MONTHLY OPERATING EXPENSES $31,052

ASSESSMENTS FOR EACH UNIT (160 units)

OPERATING EXPENSES (w/o reserves) $336,314

SCHEDULE OF DEFERRED MAINTENANCE &

Estimated Estimated Estimated Estimated Funding

TOTALS $352,000 $206,240 $36,312

1) (Complete the sentence.) A budget is divided into two main sections -

2) Money in the operating section of the budget: (Circle one.)

a) Is restricted to the line items to which it is allocated.

3) Funds that are a part of the reserves section: (Circle one.)