N.Y. Comp. Codes R. & Regs. tit. 9 § 1647-3.4

Current through Register Vol. 46, No. 25, June 18, 2024

Section 1647-3.4 - Computation and recording

(a)Average annual estimate for quarter exceeds actual expense.

(1) Assuming that the average annual estimated amount required to be set aside is $9,600, the quarterly amount required would be $2,400. Assume further that the actual expense incurred for painting and decorating during the current quarter amount to $700. Using these amounts, the computation for the quarter would be as follows:

Established quarterly amount allocated for painting and decorating	$2,400
Less: Actual painting and decorating expense for current quarter, account 4430	700
Provision to be made for painting and decorating	$1,700

(2) The journal voucher recording this transaction on the books of account would be prepared at the end of the quarter to read as follows:

Debit: Account 4894, Provision for Painting and Decorating $1,700

Credit: Account 2530, Painting and Decorating Reserve $1,700

(b)Actual expense exceeds average annual estimate for quarter.

(1) Using the same amounts as in subdivision (a) of this section for the established quarterly amount allocated for painting and decorating and assuming that the actual expense for painting and decorating for the quarter was $2,800, the computation would be as follows:

Established quarterly amount allocated for painting and decorating	$2,400
Less: Actual painting and decorating expense for current quarter, account 4430	2,800
Amount deductible from Painting and Decorating Reserve	($400)

(2) The journal voucher recording this transaction on the books of account would be prepared at the end of the quarter to read as follows:

Debit: Account 2530, Painting and Decorating Reserve $400

Credit: Account 4894, Provision for Painting and Decorating $400

(c)Excess of actual expense over average annual estimate for the quarter exceeds balance in reserve account.

(1) Using the same figures as in subdivision (a), above, for the established quarterly amount allocated for painting and decorating, assume that the actual expense for painting and decorating for the quarter to be $4,300. Assume further that at the end of the previous quarter the balance in account 2530, Painting and Decorating Reserve, was $1,500. Using these amounts, the computation would be as follows:

Established quarterly amount allocated for painting and decorating	$2,400
Less: Actual painting and decorating expense for current quarter, account 4430	4,300
Amount computed as being deductible from Painting and Decorating Reserve	($1,900)
Balance available in Painting and Decorating Reserve, account 2530	$1,500
Amount deductible from Painting and Decorating Reserve	$1,500

(2) The journal voucher recording this transaction on the books of account would be prepared at the end of the quarter to read as follows:

Debit: Account 2530, Painting and Decorating Reserve

.............................................................................................

$1,500

.............................................................................................

Credit: Account 4894, Provision for Painting and Decorating $1,500 ..............

(3) As a result of the entry, account 2530, Painting and Decorating Reserve would have a zero balance.

(d)Re-establishment of reserve following complete exhaustion of balance.

The effect of the provisions of section 1647-3.2 is to ensure that, after the reserve has been depleted, excesses of actual expenses over the average annual estimate for a quarter because of depletion of the reserve will be absorbed by the excess of the average annual estimate over actual expenses in subsequent quarters of the fiscal year before further provision is made for the reserve. Excesses of actual expenses over average annual estimates not charged against the reserve shall not, however, be carried forward into subsequent fiscal years. The operation of these provisions is illustrated in the following example:

Quarter ending	Actual P&D expense	Average annual estimate	Difference	P&D Reserve Acct. 2530
Balance as of March 31, 1948			$2,000
6/30/48	$7,400	$5,000	($2,400)	(2,000)	Depleted
9/30/48	6,000	5,000	(1,000)	-0-
12/31/48	3,500	5,000	1,500	100	Re-established
$16,900	$15,000	$1,900	$100

(1) This example shows that the reserve was depleted at the end of the first quarter of the fiscal year and that only $2,000 of the $2,400 excess of actual expense over the average annual estimate could be charged against the reserve leaving a balance of $400 not charged against the reserve. In the second quarter, the actual expense exceeded the average annual estimate by $1,000, but since the reserve had been depleted in the previous quarter, no part of this excess could be charged against the reserve. The total excess not charged against the reserve now aggregates $1,400 for the half-year. In the third quarter, the average annual estimate exceeded the actual expense by $1,500. In re-establishing the reserve, the $1,500 excess of the average annual estimate over actual expenses for the quarter would first be applied to meeting the $1,400 excess expenses not charged against the reserve and only the balance of $100 would be set aside in the reserve. The journal voucher at December 31, 1948 would be prepared to read as follows:

Debit: Account 4894, Provision for Painting and Decorating

...................................................................................................

$100

...................................................................................................

Credit: Account 2530, Painting and Decorating Reserve... $1,500 ...........................

(2) If, at the end of the fiscal year, there remained excess expenses not charged against the reserve, because of depletion thereof, such excess would not be used to reduce the amount by which the reserve would otherwise be established in the subsequent fiscal year, as illustrated in the following example:

Quarter ending	Actual P&D expense	Average annual estimate	Difference	P&D Reserve Acct. 2530
Balance December 31, 1948			$100
3/31/49	$5,200	$5,000	($200)	(100)
End of fiscal year			-0-
6/30/49	$4,900	$5,000	$100	$100	Re-established

N.Y. Comp. Codes R. & Regs. Tit. 9 § 1647-3.4