Computation and recording
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(a)Accumulating the reserve.
(1)The effect of section 1647-2.2 is that the vacancy and collection loss reserve will be increased at the end of every calendar quarter in which the sum of the actual dwelling vacancy losses incurred and collection losses written off is less than three per cent of the total dwelling rent schedule for the quarter, but no increase may be recorded which will cause the reserve to exceed a maximum amount. Under this set of circumstances, the following typical cases may arise:
(i)There is an ample margin between the amount accumulated in the V&C reserve to date and the maximum reserve.
(ii)The amount accumulated in the V&C reserve to date is close to the maximum reserve.
(iii)The maximum amount has already been accumulated in the reserve.
(2)The computation of the amount to be set aside in the reserve for a calendar quarter, hereinafter referred to as the provision to be made for that quarter, for each of the three typical cases, is illustrated in Table I which follows.
TABLE I
Computation of Provision for V & C Losses Actual Losses Are Less Than Three Per Cent of Total Dwelling Rent Schedule
| Case 1 | ||||||
|---|---|---|---|---|---|---|
| Item | Reserve Less than Maximum (Ample Margin) | Reserve Less than Maximum (Small Margin) | Reserve is at Maximum | |||
| 1. Maximum amount of V&C Reserve, account 2520 | $16,000 | $16,000 | $16,000 | |||
| 2. Less: Balance of V&C Reserve at beginning of current quarter | 12,000 | 15,850 | 16,000 | |||
| 3. Difference between items 1 and 2 | $4,000 | $150 | none | |||
| 4. Total dwelling rent schedule for the current quarter | $15,000 | $15,000 | $15,000 | |||
| 5. Three per cent of item 4 | $450 | $450 | $450 | |||
| 6. Less: Dwelling Vacancy Loss for the quarter, account 3111 | $150 | $150 | $150 | |||
| 7. Less: Collection Loss for the quarter, account 4770 | 50 | 50 | 50 | |||
| 8. Total losses for the quarter | 200 | 200 | 200 | |||
| 9. Difference between items 5 and 8 | $250 | $250 | $250 | |||
| 10. Provision to be made for V&C Losses for the calendar quarter, item 3 or 9, whichever is less | $250 | $150 | none | |||
(i)The provision (item 10 of the above table) is recorded on the books of account at the end of the quarter by a journal voucher, as follows:
Debit: Account 4895, Provision for Vacancy
and Collection Losses $XXX
Credit: Account 2520, Vacancy and
Collection Loss Reserve $XXX
(ii)No journal entry would, of course, be made for case 3 where the reserve at the beginning of the quarter was already at the maximum.
(b)Drawing upon the reserve.
(1)The effect of section 1647-2.3 is that the vacancy and collection loss reserve will be decreased at the end of every calendar quarter in which the sum of the actual dwelling vacancy losses incurred and collection losses written off is greater than three per cent of the total dwelling rent schedule for the quarter, but no decrease may be recorded which will cause the reserve account to show a debit balance. Under this set of circumstances the following typical cases may arise:
(i)The amount of the reserve is ample to absorb the charge.
(ii)The amount of the reserve is not enough to absorb the charge.
(iii)The reserve has been exhausted.
(2)The computation of the amount to be drawn out of the reserve for a calendar quarter for each of the three typical cases is illustrated in the following table.
TABLE II
Computation of Amount Deductible From V & C Reserve Where Actual Losses Are Greater Than Three Per Cent of Total Dwelling Rent Schedule
| Case 1 | ||||||
|---|---|---|---|---|---|---|
| Item | Ample Reserve | Inadequate Reserve | Reserve Exhausted | |||
| 1. Balance of V&C Reserve at beginning of current quarter | $12,000 | $900 | none | |||
| 2. Dwelling Vacancy Loss for the quarter, account 3111 | $1,400 | $1,400 | $1,400 | |||
| 3. Collection Losses for the quarter, account 4770 | 100 | 100 | 100 | |||
| 4. Total Losses for the quarter | $1,500 | $1,500 | $1,500 | |||
| 5. Total dwelling rent schedule for the quarter | $15,000 | $15,000 | $15,000 | |||
| 6. Three per cent of item 5 | $450 | $450 | $450 | |||
| 7. Difference between items 4 and 6 | $1,050 | $1,050 | $1,050 | |||
| 8. Amount deductible from V&C Reserve, account 2520, for the current quarter, item 1 or item 7, whichever is less | $1,050 | $900 | none | |||
(i)The amount by which the reserve is to be drawn upon (item 8 of the above table) is recorded on the books of account at the end of the quarter by a journal voucher, as follows:
Debit: Account 2520, Vacancy and
Collection Loss Reserve $XXX
Credit: Account 4895, Provision for
Vacancy and Collection Losses $XXX
(ii)No journal entry would, of course, be made for case 3 where there was no reserve available at the beginning of the quarter, and the entry for case 2, where the reserve at the beginning of the quarter was inadequate, would result in a zero balance in account 2520, Vacancy and Collection Loss Reserve.
(iii)A depleted reserve will be re-established in any quarter subsequent to depletion in which three per cent of the total dwelling rent schedule for the quarter exceeds the actual vacancy loss incurred and collection losses written off.