Depreciation – Timing
To simplify accounting, calculating date intervals for depreciation over several years requires a convention that typically assumes that the asset was acquired at a specific time during the year.
Tax codes have developed the half-year convention – the asset is acquired in mid-year and the first and last years of depreciation only have 50 percent of the allowable annual depreciation is deducted.
For reserve fund planning, this complicates modelling and does not meet strata living reality.
The REIC accepted convention is that the asset is renewed after the fiscal-year in question, and therefore at the end of the fiscal-year.
Why the end? Many strata corporations pass resolutions at an AGM to send money from the reserve fund to the operating fund to cover the expenditure that was typically accounted through the Repair and Maintenance line item if the operating surplus was high enough to cover the expenditure. In this instance, the expenditure is accounted for after the fact for the prior fiscal-year.
Moving forward, in cases were the the strata council is proactive and fully discloses its activities, it will not touch the operating fund, the Repair and Maintenance line item, nor the operating fund surplus. Rather, its will pass a resolution at an AGM to send reserve fund monies to the operating fund for depreciation report approved expenditures.
In reality the reserve fund monies will not be moved out of the reserve fund until such time as the project is actually completed, during the fiscal-year. Yet a further resolution will then be passed at the next AGM to acknowledge the exact amount for the expenditure. In this instance as well, the expenditure is recorded at the end of the prior fiscal-year.