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SUMMARY OF 7. Calculating the Interest Income Rate of Return

Why are writers using different ways to calculate reserve fund interest income, rates and accrued amounts? Our best-practice answer is that there is but one standard to calculate the interest accrued amount – and that all calculations are dependent on understanding what a fiscal-year is.

The interest income is derived by applying the condo | strata corporation’s historical Interest Income Rate (IIR) to the reserve fund’s opening balance amount.

Many condo | strata corporations have consultants calculate their annual reserve fund interest income by applying a market interest rate to the addition of the opening reserve fund balance to half the projected fiscal-year’s contributions.

Or sometimes, the calculation is expanded to included half of the year’s expenditures.

This complexity may appear to be skilful, but is best understood as a façade for not understanding strata finances or the importance of fiscal-year accounting.

Reserve fund planning that does not incorporate accurate rates and that does not apply the calculation to the right amount is doing all stakeholders a disservice.

About Author: Jean-François

With experience gained in construction, project management, field reviews, inspections, report writing and as strata president, J.-F. has cross-industry expertise guaranteeing that you will participate in a process geared to improving the corporation's finances and to setting the condo | strata board | council's planning to stand the test-of-time.

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