4.Materiality Concept
Concept of whether the non-disclosure or omission of items in the financial statements would distort the financial position of the MCST.
Example, lift maintenance expense for all 12 months must be paid/accrued in the accounts. However, the omission of an ad-hoc stationery bill of $50 may not distort the financial position.
Example, classification of a $350 tree-cutting expense either under "repairs and maintenance" or "landscaping" or "general expenses" may not distort financial statements.
REVIEW OF BALANCE SHEET
Balance Sheet Items
1. Fixed assets
Paying an amount of money for an asset item that will serve the MCST for many years.
Determine/estimate useful life of the asset and charge the yearly amount against income.
Depreciation should be consistently applied
Major acquisitions of fixed assets recommended to be minute
Not recommended to capitalise small asset acquisitions, like computer "mouse".
2. Amount due from subsidiary proprietor ("SP")
Usually includes unpaid management fund, sinking fund, other levies and late interest.
Determine what course of action to recover unpaid contribution.
Usually, an increase in this amount over previous year affects MCST cash-flow.
3. Bank/Fixed Deposit Balances
Normally, higher balances suggest financial stability of MCST and income has exceeded expenditure, leaving surpluses to be accumulated.
However, higher balances may suggests that contracted expenses have not been paid, i.e. higher accrued expenses.
MCST could have negative funds, suggesting that certain expenditure has not been budgeted/anticipated for.
4. Liabilities
Usually includes accrued operating expenditure.
Major expenditure not incurred but contracted/committed for must be disclosed in the financial statements (not to be accrued).
Usually includes tax liability to IRAS.
REVIEW OF INCOME AND EXPENDITURE STATEMENT
Income Items
1. Management Fund Contribution
MCST income is generally constant, as the management fund rate has been determined.
2. Late Interest
Any contribution not paid within 30 days when it becomes due and payable, shall bear interest at the rate determined by the MCST and such interest shall accrue from the expiry of 30 days after the date when the contribution becomes due and payable unless the MC determines in GENERAL MEETING that any unpaid contribution shall bear no interest'.
Must be levied accordingly as resolved at general meeting.
3. Other Income
Bank interest and net rental of common areas are taxable under Income Tax Act.
Rules apply to rental of car park to commercial car park operators.
4. Expenditure Items
Expenditure usually constant due to nature of monthly contracted items
Legal fee for recovery of unpaid contribution to be recovered from SP, as resolved.
Unusually large expenditure items may need clarification in financial statements.
MISCELLANEOUS AREAS OF INTEREST
Income Tax Consideration
Subject to provisions of Income Tax Act, (Sect 11(1))
Administrative practice (IRAS Interpretation and Practice Note, No. 7, 1993)
When 50% rule is met, MCST is subject to tax on dividends, rents and interest.
Taxed under Part B of Second Schedule of Income Tax Act.
GST Consideration
MCST subject to GST if taxable supplies exceed $1m (compulsory registration).
Taxable supplies include management fund, sinking fund and other levies.
MCST can register on voluntary basis but on 2 years minimum.
Investment consideration
An MCST may, subject to the regulations under the Act invest any moneys in its management fund and its sinking fund in any manner permitted by law for the investment of trust funds" (LTSA, Sect. 50 (a))
Most MCST invest their moneys in fixed deposits as risk is low.
Investment consideration