N.Y. Comp. Codes R. & Regs. Tit. 9 §§ 1647-4.3

Current through Register Vol. 46, No. 45, November 2, 2024

Section 1647-4.3 - Schedule of replacement reserve requirements

The schedule of replacement reserve requirements (§ 1647-4.2, subd. [a], par. [1]) prepared by the local agency for division review and approval upon substantial completion of the project consists of three tables, as follows:

Table I Computation of Estimated Requirements for Replacements

Table II Annual Provisions for Replacements

Table III Replacement Reserve Balances

These tables will be described in the subdivisions which follow.

(a)Table I-computation of estimated requirements for replacements.

(1) Starting with a list of classes of assets which, it is intended, will be replaced over the life of the project, this table states the estimated replacement cost of each class of assets (giving effect to anticipated changes in the level of prices), the estimated percentage of each class which will require replacement, and the estimated useful life of each class. The classes of assets to be included in Table I and their estimated useful lives will depend on what went into the construction of the project and the classes of assets included may be revised, some being dropped and others being added, as a result of the periodical review of the schedule of replacement reserve requirements by the division and the local agency in subsequent years. A typical list, to be considered only as an indication of the classes of assets that might be included in Table I and of their useful lives, follows:

Structures	Per cent estimated to be replaced	Estimated years of useful life
Gas Ranges	100	8
Refrigerators	100	15
Plumbing-Interior Piping	100	25
Plumbing Fixtures	25	25
Warm Air Furnaces	100	25
Automatic Hot Water Heaters	100	12
Asphalt Shingle Roofing	100	15
Flashing	100	15
Linoleum	100	12
Electric Fixtures	25	25
Screens and Combination Storm Doors	100	15
Operating Equipment	100	12

Site utilities	Per cent estimated to be replaced	Estimated years of useful life
Gas Distribution System	100	25
Electric Distribution System	50	25

(2) By extending the estimated requirements for replacement of each class of assets into appropriate columns, Table I makes it possible to determine the periodic requirements at the end of the estimated lives of assets having the same estimated useful lives. In the table above, for example, a certain sum will be required every eight years over the life of the project for replacement of gas ranges, another sum every 12 years for replacement of hot water heaters and linoleum, etc.

(b)Table II-annual provisions for replacements.

This table shows the amount to be set aside out of project revenues for replacements for each year over the life of the project, beginning with the year the project was declared substantially completed. The construction of this table will depend on which method of making the provision the local agency is authorized by the division to use (see § 1647-4.5). If the interest savings method is used, Table II will show the annual interest saving resulting from amortization of the loan from the State as the provision for replacements. If the sinking fund method is used, the annual provision is arrived at by spreading the periodical requirements determined by Table I over each year of the project's life. The annual provision arrived at by this method is generally also stated in terms of the provision to be made per construction room. Regardless of which method is used, the annual provision may be augmented in some years and reduced in other years by a sinking fund factor reflecting the interest anticipated to be earned on investments of the reserve. For accounting purposes, however, the project accountant need only concern himself with the following:

(1) Amount of annual provision.

The amount of the annual provision, as adjusted for sinking fund factor, if any, for the respective years will be found in the appropriate column of Table II. One quarter of the annual contribution is made at the end of each calendar quarter by the following journal entry:

Debit: Account 4891, Provision for Replacement ... $XXX ..............................................

Credit: Account 2510, Replacement Reserve ... $XXX ..............................................

The provision is made regardless of the charges incurred for replacements in the calendar quarter and the amount set aside is transferred from the administration fund to the reserve fund at the end of the quarter in the prescribed manner (see Subpart 1647-5).

(2) Interest on reserve fund investments.

While the interest on investments of the reserve is considered to be a part of the replacement reserve, it is recorded separately, as earned, as follows:

Debit: Account 1144, Accrued Interest Receivable on Investments ... $XXX .......................

Credit: Account 2511, Interest Earned on Reserve Fund Investments... $XXX ....................

The credit to account 2511 will include the interest on investments of vacancy and collection loss and painting and decorating reserves, as well as of replacement reserves, the interest earned on all investments of reserves being considered available solely for replacements. Such availability will be reflected by transfers from time to time, with prior division authorization and approval, of balances in account 2511 to account 2510. No charges for replacements shall be made to account 2511, all such charges being made as a matter of procedure to account 2510.

Note:

For gain or loss on disposition of reserve fund investments, see section 1645-2.4.

(c)Table III-replacement reserve balances.

This table relates the annual provisions or contributions to the reserve (account 2510), as per Table II, and the interest anticipated to be earned on investments of the reserve (the sinking fund factor) to the requirements for replacements, as per Table I and is intended to show that the reserve funds will be accumulated at a rate adequate to meet the estimated requirements for replacements as and when they occur. The table accordingly shows, for each year of the project's life, credits from the annual contributions and the interest anticipated to be earned, the charges for replacements, and the balance of the reserve (accounts 2510 and 2511 being here considered as a unit) at the end of the fiscal year after all charges and credits. Table III is of less immediate interest to the project accountant than Tables I and II. The annual provision for replacements is based on Table II and not on the maintenance of the balances shown in Table III. The division may, however, as a result of its review of the adequacy of the reserve, authorize or direct the local agency, in a given year, to adjust the annual provision to maintain the reserve balance as shown in Table III.

N.Y. Comp. Codes R. & Regs. Tit. 9 §§ 1647-4.3