A syndicate of co-owners has the obligation to account for its operations by funds. The Civil Code of Québec requires the creation of a general fund, a contingency fund and in April 2022, the creation of the self-insurance fund. The creation of the early self-insurance fund is recommended. The general fund for current operations is also sometimes referred to as an administration fund or an administration fund.
Implementation
The constitution of funds complicates the accounting of the co-ownership. Administrators cannot only have a bank account called a contingency fund or self-insurance fund and imagine that the requirements of the Civil Code of Quebec are met. Each of the funds, being independent of the others, must have its own financial statements: a statement of operations, net assets and financial position (balance sheet).
As each fund is independent, it may be that at the end of the year there will be unpaid inter-fund transactions. For example, the administration fund could have an amount receivable from the contingency fund if it paid expenses for the contingency fund during the year. Conversely, it is possible that the administration fund will have to pay an amount to the contingency fund if, for example, it lacked the liquidity to make the contributions as budgeted. This type of inter-fund due is contrary to the will of the Civil Code of Quebec which mentions that at all times the assets of the provident fund and the self-insurance fund must be liquid. Indeed, an account receivable from the administration fund does not constitute a liquid asset of the contingency fund unless it has sufficient liquidity to the administration fund.
The multiplication of funds
Several co-owneships want to compartmentalize the operations of the syndicate and therefore create several funds. In addition to the contingency fund, there is sometimes the care or maintenance fund, the legal fund, the renovation fund, the improvement fund, the painting fund and so on. Remember that when you multiply the funds, they are independent so if a fund does not have the money to operate, there will necessarily be sums to receive or pay between the funds. It then becomes complicated to fully understand and explain the financial statements. It's best to keep it simple.
Reserve
A good compromise to the multiplication of funds are reserves in the statement of net assets. The reserve does not create the obligation to have a separate bank account. The reserve is created when you allocate an amount of your accumulated surplus from the general or administrative fund to an upcoming event or project. The co-owners then know that part of their surplus is already reserved. The reserve makes it possible to give a reason for the surplus that might otherwise be considered excessive.
So, good thinking before multiplying the funds and bank accounts of the co-ownership. Think of the lay readers of the financial statements...
Aline Desormeaux, CPA auditrice, CA
Désormeaux Patenaude inc
1312 Sherbrooke est
Montréal, Québec H2L 1M2
Téléphone : 514 522-2232 EXT. 207
[email protected]
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