CMCA - Certified Manager of Community Associations Budgeting and Reserve Studies Questions and Answers Flashcards

A reserve study conducted by an outside professional that includes a site visit and component analysis is classified as a:

Answer: Level I Full update with site visit

A Level I Full reserve study is the most comprehensive, involving an on-site inspection of all reserve components, quantity and condition verification, and a complete financial analysis.

Which financial statement best shows an association's reserve fund balance at a specific point in time?

Answer: Balance sheet or statement of financial position

The balance sheet shows assets, liabilities, and fund balances at a specific date, including the reserve fund balance as a restricted asset or fund.

A manager notices that the reserve study lists a component's remaining useful life as zero but the component has not been replaced. The best immediate action is to:

Answer: Notify the board so it can inspect the component and decide whether to replace or extend its life

When a component reaches the end of its projected useful life, the board should inspect it and make an informed decision to replace it, refurbish it, or extend its life with a revised estimate.

In an association budget, contingency funds are best described as:

Answer: A line item covering unexpected operating expenses within the fiscal year

A contingency line in the operating budget provides a buffer for unforeseen operating expenses during the year, preventing the need for emergency board action every time an unexpected cost arises.

When reviewing a proposed annual budget, the board should compare it against:

Answer: The previous year's actual expenses and current year-to-date actuals

Comparing the proposed budget to prior-year actuals and current year-to-date spending helps the board identify trends, catch errors, and ensure the new budget reflects realistic cost projections.

An association that borrows money to fund a capital replacement project instead of using reserves is said to be using:

Answer: Deficit financing

Deficit financing occurs when an association borrows funds to pay for capital projects rather than using accumulated reserves.