Here is a list of terms that are often used in our industry. We hope you find this information helpful.
CATEGORY: A group of associated Reserve Items.
CASH FLOW: The collection and expenditure of money over time.
CASH FLOW METHOD: A method of developing a Reserve Funding Plan where contributions to the Reserve fund are designed to offset the variable annual expenditures from the Reserve fund.
DEPRECIATION: AFI uses straight line depreciation. Defined as the Present Cost divided by the Expected Life and multiplied by the sum of the Expected Life less the Remaining Life. Depreciation for a new reserve item begins at zero and ends with the replacement cost of the component.
(Present Cost – Net Present Value = Depreciated value of the component)
EFFECTIVE AGE: The difference between Expected Life and the Remaining Life. Not usually the same as the chronological age.
FINANCIAL ANALYSIS: That portion of a Reserve Study which evaluates both the present and the future association reserve fund. Recommended Reserve contributions are calculated, and the projected Reserve income and expense over time is presented.
FULLY FUNDED: 100% Funded. When the actual or projected Reserve Balance is equal to the Fully Funded Balance. Occurs when the funds in the reserve account are equal to the Depreciated Value of the assets.
FULLY FUNDED BALANCE (FFB): An indicator against which the Reserve balance can be compared. This number is calculated for each reserve item by year, then totaled.
NET PRESENT VALUE: The current value of the component less the depreciated value of that component.
NUMBER OF UNITS: A measurement used with the Unit Cost to calculate the Present Cost. Square feet, cubic yards, lineal feet are examples.
PERCENT FUNDED: The ratio of the actual Reserve Balance to the Fully Funded Reserve Balance expressed as a percentage. The value of the Percent Funded changes with time.
PHYSICAL INSPECTION: The portion of the Reserve Study that generates the Reserve Item inventory and the condition of the Reserve Items.
PRESENT COST: The cost of a component today. Consists of the Unit Cost times the Number of Units of that component.
REMAINING LIFE: The estimated number of years that an existing Reserve Item will serve its intended function.
REPLACEMENT COST: The cost of replacing a Reserve Item to a new condition. The Current Replacement Cost is the cost to replace a Reserve Item today.
RESERVE BALANCE: Actual or projected funds at year end that the association has available to defray future expenses. Also known as Reserves, Reserve Accounts, or Cash Reserves.
RESERVE ITEM: An element of a reserve category. Reserve Items consist of association facilities, which must be maintained or replaced by the association. Also known as “Component”.
RESERVE STUDY: A budget planning tool which analyzes the current Reserve fund and expected future expenses. A Reserve Study consists of a Physical Inspection of the facilities and a Financial Analysis of the Reserve fund.
RESERVE STUDY ANALYST: A qualified individual that prepares Reserve Studies.
SPECIAL ASSESSMENT: An assessment levied on the members of an association in addition to regular assessments. Special Assessments are often regulated by Governing Documents or local statutes.
UNIT COST: The present cost of a Reserve Item on a unit basis. Dollars per foot of fence is an example.