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304.1 Accounting guidance for CIRAs does not establish requirements or provide recommendations for accounting for common real property. Rather, it describes
- “prevalent industry practice” in
- that regard. This section describes industry practice for accounting for
- common real property and explains the rationale for differing
- viewpoints so that accountants may be in a better position to decide on
- the appropriate accounting treatment in particular circumstances. The
- authors' recommendations for accounting for common real property are
- presented beginning in paragraph 304.9. The accounting guidance for common personal property are discussed beginning in paragraph 304.18.
What Is Common Property?
304.2 Common property is all real
or personal property within a common interest ownership development
except property that is owned exclusively by the individuals living in
the development. Common property includes:
• Real property owned by individual members in common
• Real property owned by the CIRA
• Personal property owned by the CIRA and used on common real property
- The governing documents of all
- CIRAs provide that members share the exclusive use of the common
- property within the development. Exhibit 3-3 lists examples of common property that usually exist in condominiums, HOA communities, and cooperatives.
Examples of Common Property
Common Property for Condominiums, Homeowners' Associations, and Cooperatives:
Land, such as front entrance walkways, landscaped aeas, parking lots and roads.
Buildings (other than individual units) on common property and other real property improvements and landscape (including patios, terraces, courtyards)
Recreational facilities, such as clubhouses, tennis courts and swimming pools
Hallways, lobbies and public areas
Personal property used on common property, such as pool furnishings, clubhouse furnishings, and landscaping equipement.
304.3 The types of common property
in condominiums, HOA communities, and cooperatives may be distinguished
by who has title to the property—the members in common or the CIRA. For
example, in a condominium development, the individual members generally
- an undivided interest in the
- development's common real property. (In rare cases, the CIRA owns some
- portion or all of the common real property.) In contrast, the CIRAs have
- title to common real property in HOA communities. The members do not
- have an undivided interest in it but only have a right to share its use
The types of common property are summarized as follows:
- Common real property owned by members:
- Condo- Generally
- HOA- No
- Common real property owned by CIRA:
- Condo- Rarely
- HOA- No
- Common personal property owned by CIRA:
- Condo- Yes
- HOA- Yes
The question of who owns the common
property—the members or the CIRA—is significant since, as explained in
the following paragraphs, it is one of the principal criteria for
deciding whether CIRAs should
capitalize common property as assets in their financial statements.
Capitalizing Common Real Property
304.4 Categories of Common Real Property FASB ASC 972-360-25 (formerly the AICPA guide, Paragraph 2.07) classifies common real property into the following broad categories:
- a. Property That Is Directly Associated with the Unit. (That
- is, common property without which the units could not be occupied and
- exterior property that is normally part of a freestanding unit).
- Examples include exterior walls, roofs, public hallways, underlying
- land, sidewalks, driveways, roads, some parking spaces, and greenbelts.
- b. Property That Is Not Directly Associated with the Unit.
- (That is, community resource property that is not necessary for the
- primary use of the unit, although individual unit owners may benefit
- from its use). Examples include recreational facilities, such as
- swimming pools or clubhouses, managers' apartments, and properties that
- are primarily used for commercial operations directed at nonunit owners
- or at unit owners for which they pay a fee based on usage.
304.5 Prevalent Industry Practice for Capitalizing Common Real Property According to FASB ASC 972-360-25-1 (formerly the AICPA guide, Paragraph 2.08),
cooperatives recognize all common real property as assets. Condominium
and homeowners' associations, on the other hand, generally do not
capitalize common real property directly associated with the units (item
a. in the preceding paragraph). Furthermore, FASB ASC 972-360-25-3 (formerly the AICPA guide, Paragraph 2.10)
states that most condominium and homeowners' associations capitalize
common real property not directly associated with the units (item b. in
paragraph 304.4) only in the following circumstances:
a. The CIRA has title or other evidence of ownership of the property and
- b. Either of the following conditions are met:
- The CIRA can dispose of the property, at the discretion of its board
- of directors, for cash or claims to cash, with the CIRA retaining the
- proceeds.(2) The property is used by the CIRA to generate significant cash flows from members on the basis of usage or from nonmembers.