Chapter 17 - Solution Manual

Common interest realty associations that fund future

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replacements. Common interest realty associations that fund future major repairs and replacements by special assessments or borrowings when needs occur shall disclose that information. > Required Supplementary Information 50-3 Common interest realty associations shall disclose the following as unaudited supplementary information: a. Estimates of current or future costs of future major repairs and replacements of all existing components, such as roofs, including estimated amounts required, methods used to determine the costs, the basis for calculations (including assumptions, if any, about interest and inflation rates), sources used, and the dates of studies, made for this purpose, if any. There is no requirement for common interest realty associations to obtain studies prepared by professional engineers. The estimates may be made by the board of directors or estimates obtained from licensed contractors.
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380 b. A presentation of components to be repaired and replaced, estimates of the remaining useful lives of those components, estimates of current or future replacement costs, and amounts of funds accumulated for each to the extent designated by the board Room for Debate Debate 17-1 Team 1 Argue for recording the lease as a capital lease This is an ethics case. It is unethical to structure the lease so that the company will be able to keep the debt off balance sheet. This is masking the economic facts and results in biased reporting. By paying a third party to guarantee the lease, Snappy is able to circumvent the requirement that the lease be capitalized. In my opinion, self-guarantee is in substance the sale as taking out insurance, i.e., paying a third party to guarantee the lease. In either case, the lessee has taken care of the guarantee of the residual value. In any event the conditions of the lease satisfy the definition of assets and liabilities found in the conceptual framework. SFAC No. 6 defines assets as probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. An asset embodies a probable future benefit that involves a capacity, singly or in combination with other assets, to contribute directly or indirectly to future net assets. A lease embodies the transfer of rights to the lessee to use the leased asset. The use of the asset singly, or in combination with other assets contributes directly or indirectly to generate future cash flows. A particular entity can obtain the benefit derived from an asset or control other’s access to it. The lease transfers rights to use the asset to the lessee who then obtains benefits derived from its use. The transaction or event giving rise to the entity’s right to or control of the asset has already occurred. That transaction is the initiation of the lease agreement. It is clear that a lease agreement has all three characteristics of an asset even when it does not meet the SFAS No. 13 criteria for capitalization as an asset.
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