The Smithsonian received appropriations for operations of $318,492,000 in fiscal 

 year 1997. Federal appropriations for operations are generally available for obligation 

 only in the year received. In accordance with Public Law 101-510, these annual appro- 

 priations are maintained by the Smithsonian for five years following the year of appro- 

 priation, after which the appropriation account is closed and any unexpended bal- 

 ances are returned to the U.S. Treasury. During fiscal year 1997, the Smithsonian 

 returned $1,299,000 to the U.S. Treasury which represents the unexpended balance for 

 fiscal year 1992. 



The Smithsonian received appropriations for repair and restoration of facilities and 

 construction of S52, 850,000 in fiscal year 1997. Federal appropnations for repair and 

 restoration of facilities and construction are generally available for obligation until ex- 

 pended. 



Federal appropriation revenue recognized in fiscal year 1997 can be reconciled to the 

 federal appropriations received in fiscal year 1997 as follows: 



(SOOOs) 



Federal appropriation revenue 



Unexpended 1997 appropriation 



Amounts expended from prior years' obligations 



Other funding 





Repair and 





Salaries and 



Restoration and 





Expenses 



Construction 



Total 



S 313,523 



69.945 



383.468 



45,762 



52.850 



98,612 



(40.226) 



(69.945) 



(110.171) 



(5671 





(567) 



Federal appropriation received 



Federal expenses recognized in fiscal year 1997 can be reconciled to the federal ap- 



propriations received in fiscal year 1997 as follows: 







Repair and 







Salaries and 



Restoration and 







Expenses 



Construction 



Total 



Federal expenses 



S 313.928 



25.958 



339.886 



Unexpended 1997 appropriation 



45.762 



52.850 



98.612 



Depreciation 



(5.600) 



(25.565) 



(31.165) 



Supplies consumption 





(163) 



(163) 



Loss on disposition of assets 





(230) 



(230) 



Unfunded annua! leave 



1.755 





1.755 



Amount expended from prior years' obligations 



(40.226) 



(69.945) 



(110.171) 



Capital expenditures 



3.440 



69.945 



73.385 



Other funding 



(567) 





56" 



Federal appropriation received 



S 31S.492 



52.850 



3-1.34: 



The $339,886,000 in Federal expenses includes $1,999,000 for collections purchases. 

 Federal unrestricted net assets primarily represent the Smithsonian's net investment in 

 property, plant and equipment purchased with or constructed using federal appropri- 

 ated funds. 



Unexpended appropriations for all fiscal years total $173,800,000 at September 30, 

 1997, and consist of $71,811,000 in unexpended operating funds and SlOl.989,000 in 

 unexpended repair and restoration and construction funds. Unexpended operating 

 funds include amounts for the Museum Support Center move and the National Mu- 

 seum of the American Indian. Unexpended repair and restoration funds represent 

 amounts available for on-going major repair and restoration of the Smithsonian's mu- 

 seums and facilities. Unexpended construction funds represent amounts appropriated 

 but not yet expended for construction of new facilities. 



Use of Estimates 



The preparation of financial statements in conformity with generally accepted ac- 

 counting principles requires management to make estimates and assumptions that af- 

 fect the reported amounts of assets and liabilities and disclosure of contingent assets 

 and liabilities at the date of the financial statements and the reported amounts of rev- 

 enues and expenses during the reporting period. Actual results could differ from those 

 estimates, however, management does not believe that actual results will be materially 

 different from those estimates. 



Fair Value of Financial Instruments 



The carrying value of financial instruments in the financial statements approximates 

 fair value. 



Cash and Balances with US Treasury 



Amounts represent cash deposited with financial institutions, balances held by the 

 U.S. Treasury that are available for disbursement and a repurchase agreement totaling 

 $3,840,000 at September 30, 1997. 



Investments 



The Smithsonian's marketable equity and debt securities are reported at fair value 

 based on quoted market prices. Changes in fair value are recognized in the statement 

 of financial activity. Purchases and sales of investments are recorded on the trade date. 



Investment income is recorded when earned, and realized gains and losses on the sale 

 of investments are recognized on the trade date basis using the average cost method. 

 As mandated by Congress, the Smithsonian maintains two $500,000 Treasury invest- 

 ments relating to the original James Smithson gift. 



Contributions Receivable 



Contributions receivable that are expected to be collected within one year are reported 

 at the net realizable value. Contributions receivable that are expected to be collected in 

 future years are discounted to present value and reported at net realizable value. Con- 

 ditional contributions receivable are not recorded until material conditions have been 

 met. 



Inventories 



Inventories are reported at the lower of cost or market, and consist primarily of mer- 

 chandise inventory, books, recordings, and office supplies. Cost is determined using 

 the first-in, first-out method. 



Deferred Revenue and Expense 



Revenue from subscriptions to Smithsonian magazine and Air 6V Space/Smithsonian mag- 

 azine is recognized over the period of the subscription, which is generally one year. 

 Certain costs to obtain subscriptions to the magazines are charged against revenue 

 over the subscription period. 



The Smithsonian expenses promotion production costs the first time the advertising 

 takes place. Direct-response advertising relating to the magazines is deferred and amor- 

 tized over one year. 



Split Interest Agreements and Perpetual Trusts 



Split interest agreements with donors consist primarily of irrevocable charitable re- 

 mainder trusts. Contribution revenue and assets are recognized at fair value on the 

 date the trusts are established. Assets are adjusted during the term of the trusts for 

 changes in the value of the assets, accretion of discounts, and other changes in the es- 

 timated future benefits. 



The Smithsonian is also the beneficiary of certain perpetual trusts held and adminis- 

 tered by others. The present values of the estimated future cash receipts from the trusts 

 are recognized as assets and contribution revenue at the dates the trusts are estab- 

 lished. Distributions from the trusts are recorded as contributions and the carrying 

 value of the assets is adjusted for changes in the estimates of future receipts. 



Property and Equipmen t 



Property and equipment purchased with federal or frust funds are capitalized at cost. 

 Property and equipment acquired through transfer from government agencies are capi- 

 talized at net book value or fair value, whichever is more readily determinable. Prop- 

 erty and equipment acquired through donation are capitalized at appraised value at 

 the date of the gift. These assets are depreciated on a straight-line basis over their esti- 

 mated useful lives as follows: 



Buildings 



30 years 



Major renovations 



15 years 



Equipment 



3-10 years 



Certain lands occupied by the Smithsonian's buildings, primarily located in the Dis- 

 trict of Columbia, Maryland and Virginia, were appropriated and reserved by Congress 

 for the Smithsonian's use. The Smithsonian serves as trustee of these lands for as long 

 as they are used to carry out the Smithsonian's mission. These lands are titled in the 

 name of the U.S. government and are not reflected in the accompanying financial 

 statements. 



Collections 



The Smithsonian acquires its collections, which include works of art, library books, 

 photographic archives, objects and specimens, by purchase using federal or trust funds 

 or by donation. All collections are held for public exhibition, education, or research, 

 furthering the Smithsonian's mission to increase and diffuse knowledge to the public. 

 The Smithsonian protects and preserves its collections, which total more than 140 mil- 

 lion items. The Smithsonian's Collections Management policy includes guidance on 

 the preservation, care and maintenance of the collections and procedures relating to 

 the accession/deaccession of items within the collections. 



The Smithsonian's policy is to not capitalize its collections, therefore, no value is as- 

 signed to the collections on the statement of financial position. Purchases of collection 

 items are recorded as expense in the year in which the items are acquired. Contributed 

 collection items are not reflected in the financial statements. Proceeds from deacces- 

 sions or insurance recoveries from lost or destroyed collection items are reflected as in- 

 creases in the appropriate net asset class, and are designated for future collection ac- 

 quisitions. 



Items that are acquired with the intent at the time of acquisition not to add them to 

 the collections but rather to sell, exchange, or otherwise use them for financial gain 

 are not considered collection items, and are recorded at fair market value at date of ac- 

 quisition as other assets in the statement of financial position. 



310 



