CMCA Budgeting and Reserve Studies 4

Question 1

What is the key distinction between a 'repair' and a 'replacement' for reserve funding purposes?

Accepted Answer

Repairs restore function without extending useful life; replacements renew the component for a full new lifespan

Answer

Repairs maintain existing function without resetting useful life, while replacements start a new full useful life cycle.

Question 2

A reserve study preparer recommends increasing annual contributions by 15% due to rising construction costs. The board decides to ignore the recommendation. What is the primary risk?

Accepted Answer

The association may face a funding shortfall requiring a special assessment

Answer

Ignoring professional recommendations leads to underfunding, which typically results in special assessments or deferred maintenance.

Question 3

Which financial statement provides a snapshot of the association's reserve account balance at a specific point in time?

Accepted Answer

Balance sheet

Answer

The balance sheet shows assets, liabilities, and equity including the reserve fund balance at a specific date.

Question 4

A manager is reviewing bids for reserve-funded roof replacement. The lowest bid is 30% below the next lowest. The best course of action is to:

Accepted Answer

Investigate the low bid for scope omissions or contractor qualifications before recommending acceptance

Answer

An unusually low bid often signals missing scope, inexperience, or financial instability, requiring due diligence before acceptance.

Question 5

Under the accrual basis of accounting, reserve contributions are recognized:

Accepted Answer

In the period they are earned/assessed, regardless of cash receipt

Answer

Accrual accounting records revenue when earned (when assessed), not when cash is actually received.

CMCA - Certified Manager of Community Associations Practice Test

CMCA - Certified Manager of Community Associations Practice Test

CMCA Budgeting and Reserve Studies 4