I’ll admit, sometimes the asset listing on a balance sheet can look confusing. Over the next several weeks, I’ll explain the detail behind four typical asset categories shown on a shared airplane ownership balance sheet:
- Cash & Receivables
- Funded Reserves
- Prepaid Items
- Fixed Assets or The Airplane
A balance sheet shows assets at a specific date in time. It’s a standard practice to list assets in order of liquidity.
How do you calculate Cash & Receivables?
In this example, cash would represent the checking account balance as of March 31st. Receivables would represent money owed but not yet paid by members. Typically, an invoice would be prepared for the previous month member flight time and sent to members. The invoices to members become a receivable. I added cash and receivables together and listed them on the balance sheet.
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 |
Next week will review the presentation of funded reserves.
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Your past few posts have been good. Would be interested in learning what you are doing to value your aircraft and whether you are discounted the valuation for any expenses related to a sale. Perhaps you can address that in a future post.
David, thanks for posting. Our Cirrus SR22 is in a shared ownership and held in a Limited Liability Company (LLC). The LLC Members meet at least once per year to agree on the valuation of Membership interest.
We have a depreciation schedule for the engine and CAPS that reduce the aircraft’s value over time. You could include more items to depreciate but we have agreed to focus on these two.
We don’t intend to sell the aircraft. It’s more common for a Member to sell a portion or all of their interest in the LLC. When a sale of a Membership interest occurs a one-page document called “Exhibit, Valuation of Membership Interest” is used to agree on and document the sale price. That document is in a detailed balance sheet format as shown in these weblog posts. It’s the same document Members use at least annually to agree on the LLC value.
If the aircraft were sold, then the sales price would affect the balance sheet either up or down based on net cash received after expenses. All of the LLC assets would be added up and all liabilities would be subtracted. Any remaining funds would be distributed to Members based on their ownership percentage, and the LLC would be dissolved.
Let me know if this answers your question.