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The amount of the current year contribution to each rerve account shall be the sum of the following two Calculations:
1. The amount necessary if any to bring a negative account balance to zero.
2. The total estimatied deferred maintenance expense or estimated replacement cost of the reserve component less the estimated balance of the reserve account as of the beginning of the period for which the budget will be in effect.
The remainder, if greater than zero, shall be divided by the estimated remaining useful life of the asset.
The formula my be adjusted each year for changes in estimates and deferred maintenance performed during the year and may consider factors such as inflation and earnings on invested funds.
Cash Flow Method
How do we calculate?
- FAC 61B-22.005
- If the association maintains a pooled account of two or more of the required reserves assets the amount of the contribution to the pooled reserve account as disclosed on the proposed budget shall be not less than required to ensure that the balance on hand at beginning of the period for which the budget will go into effect plus the projected annual cash inflows over the remaining outflows over the remaining estimated useful lives of all of the assets that make up the reserv pool, based on current reserve analysis.
The projected annual cash inflows may include estimated earnings from investment of principal. The reserve funding formula shall not include any type of balloon payments.
Cash Flow Method -- In other words....
Combined expenditures are simply offset with existing pooled reserves and future contributions.
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