What Assets are Capitalized in an Association?

This is a question that caused disputes among the accounting “powers that be” (AICPA and FASB) for over ten years. The resulting answer was not absolute. Instead, they defined what is industry standard. Thus, there is leeway to capitalize MORE assets than is industry standard, but NOT LESS.

The following is in keeping with industry standards as defined in the Financial Standards Accounting Board’s Codification (FASB), which contains generally accepted accounting principles (GAAP) – section 972, et seq. While GAAP allows additional items to be capitalized outside of the following guidelines, it is not industry standard to do so.

• The Association will not capitalize real property directly associated with the units.


• The Association will capitalize those real property assets not directly associated with the units only when the Association has title and the Board maintains control. Board control is defined to mean that the Board can dispose of the asset without a vote of the membership and the Association can keep the proceeds from the sale of the asset. The other reason to capitalize real property not directly associated with the units is when significant cash flows are generated from members on the basis of usage or from nonmembers.


• The Association shall recognize common personal property, such as furnishings, recreational equipment, maintenance equipment, and work vehicle, that is used by the Association in operating, maintaining, repairing, and replacing common property and providing other services. (It is assumed in this case that the Association has title and the Board maintains control of these assets)

Capitalized assets will be recorded on the balance sheet of the financial statements of the association in the operating fund (FASB 972-10-45-7).

The Board will designate whether to purchase the capitalized assets from the replacement fund (reserves) or operating fund and document that decision in their minutes. Either is acceptable. For accounting purposes, if the asset is purchased from reserve monies it will be transferred to operating fund to be held as an asset of the operating fund (FASB 972-10-25-1)

The capitalized assets will be depreciated over their estimated useful lives based upon the straight line method of depreciation. (FASB 972-10-35-1).

We recommend that the Board adopt a Capitalization Policy which includes the above information. It would also include the dollar amount and minimum life of capitalized assets. For example, an association may choose to capitalize all assets meeting the above criteria with a value over $1,000 and a life of more than two years. A sample Capitalization Policy is found in our Forms Section.

The other two things a Board may consider is 1) removing assets that are on the books that don’t meet the approved criteria and/or 2) adding assets that are not on the books that meet the approved criteria. Either action should be documented in the Board meeting minutes. For assets that are to be added to the financial statements the following information is needed:

• Asset name
• Whether it was purchased or donated
• Estimated date of acquisition
• An estimation of the cost
• How that estimation was determined – Actual purchase cost, estimated purchase cost or fair market value
• Donated items must be valued at the fair value
• If the donation was from the developer and the developer’s cost is known, that can be used in determining the fair value