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Depreciation – Straight Line

Straight-line accounting is interpreted to mean that no money for a component can be shared with another component such that more money is required in a reserve fund.

More importantly, compared to a cashflow based approach to reserve fund planning, straight-line planning allows a corporation to tweak its planning and not necessarily for the better.

For example, if a corporation expects higher income in future years, it can use straight-line depreciation for modelling contributions to be less in the immediate future.

Straight-line depreciation yields larger amounts in future years. In a straight-line scenario, 100 percent of the depreciation is allotted by the expected lifespan of the component (100 percent/16=) or 6.25 percent per fiscal-year. If the component is 9 years old, then the accumulated depreciation is (6.25% x 9=) or 56.26 percent and the reserve requirement is thus the cost times the accumulated depreciation ($13,628 x 56.26%=) or $7,666.

Best-practice scenarios do not tweak contributions and do not stray from the functional approach with its fiscal-year based modelling of all variables considered at-once.

The straight-line deviation is comparable to measuring your net-worth in terms of 5, 10 or 30 years from now.  Good luck getting a loan at the bank…

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.