How do you present funded reserves on the balance sheet of a shared airplane ownership?

Aviator and passenger in Cirrus Aircraft SR22TN Perspective by Garmin, photo credit wikiWings
Shared ownership in Cirrus Aircraft SR22TN Perspective by Garmin, photo credit wikiWings

Most shared airplane ownerships will want to set aside money for funded reserves. The purpose is to offset future outlays associated with engine replacement, prop overhaul, and items such as, Cirrus Airframe Parachute System.

You’ll find it easier, from a book keeping perspective, if you keep funded reserves in a savings account instead of co-mingling the funds with money in a checking account.

We use our LLC checking account to hold money to pay for gas and oil changes, and for regular maintenance, such as, tires, brakes, spark plugs, etc. But we transfer reserve funds for engine and prop overhaul into a savings account.

This balance sheet example shows a pre-TBO and post-TBO reserve fund. The pre-TBO reserve is for cylinder replacements needed before the engine is exchanged. High performance Teledyne Continental Motor (TCM) engines used on SR22 planes are known for not making it to TBO without some cylinder replacements. For more information about this topic see “Cylinder Replacement, Cost of Ownership posts in January of 2016.

BALANCE SHEET ASSETS (LIABILITIES AND OWNERS EQUITY NOT SHOWN)

Assets 3/31/16
Cash & Receivables 8,517
Receivables:
Member – Jones 275
Member – Smith 420
Funded Reserves (Savings) 19,000
Funded Reserve (Pre-TBO cylinder maintenance) 2,000
Funded Reserve (Post TBO: engine, prop) 17,000
Prepaid Items
Airport Hangar 2,723
Insurance 1,165
Subscriptions 656
Net Aircraft Value 230,600
Aircraft: Cirrus SR22 250,000
Depreciation (BRS Ballistic Recovery System) (2,400)
Depreciation (TBO: engine,prop overhaul) (17,000)
Total Assets $262,660

Funded reserves shows the actual cash saved for future costs associated with items like engine exchange. But depreciation that is shown on the balance sheet is a non-cash expense. It’s an important number for planning and budgeting purposes. We’ll look at depreciation in more detail during a future weblog.

Copyright 2016 wikiWings, LLC, All rights reserved

Leave a Reply