CAM Financial & Budgeting Responsibilities 2 — Questions and Answers
Question 1: A property manager discovers that actual maintenance costs are running 18% over budget midway through the fiscal year. What is the BEST immediate course of action?
- Ignore the variance until year-end and reconcile then
- Analyze the cause, adjust the forecast, and notify ownership with a remediation plan (Correct answer)
- Reduce all other expense categories equally to offset the overrun
- Request an emergency capital contribution from the owner
Correct answer: Analyze the cause, adjust the forecast, and notify ownership with a remediation plan
Identifying the root cause and communicating proactively with ownership allows informed decisions and demonstrates financial stewardship.
Question 2: Which financial statement shows a property's assets, liabilities, and owner equity at a specific point in time?
- Income statement
- Cash flow statement
- Balance sheet (Correct answer)
- Budget variance report
Correct answer: Balance sheet
The balance sheet (statement of financial position) captures the financial snapshot of assets, liabilities, and equity on a given date.
Question 3: When preparing a capital expenditure budget for an apartment community, which item would typically be classified as a capital expense rather than an operating expense?
- Monthly landscaping service
- Replacement of all HVAC units (Correct answer)
- Annual fire extinguisher inspection
- Routine carpet cleaning between tenants
Correct answer: Replacement of all HVAC units
Replacing HVAC units extends the useful life of the property and is capitalized, whereas routine maintenance is expensed.
Question 4: A property's gross potential rent is $500,000 annually, and the economic vacancy loss is $40,000. What is the effective gross income before adding other income?
- $500,000
- $460,000 (Correct answer)
- $540,000
- $440,000
Correct answer: $460,000
Effective gross income equals gross potential rent minus vacancy and credit losses: $500,000 − $40,000 = $460,000.
Question 5: Which budgeting method requires every expense to be justified from zero each budget cycle rather than using the prior year as a baseline?
- Incremental budgeting
- Zero-based budgeting (Correct answer)
- Rolling budget method
- Top-down budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting starts from a 'zero base' and requires justification for all expenses regardless of the previous budget.
Question 6: A CAM candidate is reviewing a profit and loss statement. Where would concession costs (such as one month free rent) typically appear?
- As an operating expense line item
- As a reduction to gross potential rent or rental income (Correct answer)
- In the capital expenditure section
- Under financing activities
Correct answer: As a reduction to gross potential rent or rental income
Concessions reduce the effective rental income collected and are typically shown as a deduction from gross potential rent.
Question 7: What does the debt service coverage ratio (DSCR) measure in apartment property finance?
- The ratio of gross rent to total expenses
- The ability of net operating income to cover mortgage payments (Correct answer)
- The percentage of units occupied on a given day
- The ratio of capital expenses to operating expenses
Correct answer: The ability of net operating income to cover mortgage payments
DSCR = Net Operating Income ÷ Debt Service; a ratio above 1.0 means the property generates enough income to cover its loan payments.
CAM Financial & Budgeting Responsibilities 2
A property manager discovers that actual maintenance costs are running 18% over budget midway through the fiscal year.
What is the BEST immediate course of action?