funds. Gains and losses on the sale of investments are recognized on the trade 

 date basis using the average cost method. 



(d) Inventory 



Inventories are reported at the lower of cost or market. Cost is determined 

 using the first-in, first-out method. 



(e) Deferred Revenue and Expense 



Revenue from subscriptions to Smithsonian magazine and Air & Space/ 

 Smithsonian magazine is recorded as income over the period of the related 

 subscription, which is generally one year. Costs related to obtaining subscrip- 

 tions to Smithsonian magazine and Air & Space/ Smithsonian magazine are 

 charged against income over the period of the subscription. 



The Institution recognizes revenue and charges expenses of other auxiliary 

 activities during the period in which the activity is conducted. 



(f) Works of Art, Living and Other Specimens 



The Institution acquires its collections, which include works of art, library 

 books, photographic archives, objects and specimens, through purchase with 

 federal or private funds or by donation. All collections are held for public 

 exhibition, education, or research in furtherance of the Institution's mission 

 to increase and diffuse knowledge to the public. The Institution provides pro- 

 tection and preservation services for its collections. 



In accordance with policies generally followed by museums, no value is 

 assigned to the collections on the statement of financial condition. Purchases 

 of collections are expensed currently. Proceeds from deaccessions are recog- 

 nized as other revenue in the year of sale, and are designated for future col- 

 lection acquisitions. At September 30, 1994, $9,055,000 was so designated in 

 the trust funds as quasi-endowment. 



(g) Property and Equipment 



Federal Funds 



Property and equipment purchased with federal funds are recorded in the 

 capital funds at cost and depreciated on a straight-line basis over their useful 

 lives as follows: 



(ij Pledges 



The Institution records pledges based upon letters signed by donors. Pledges 

 are recorded at net realizable value as a receivable and as deferred revenue on 

 the statement of financial condition. Revenue from pledges is recognized in 

 the year the pledged funds are collected. 



(i) Gifts, Bequests, and Other Grants 



The Institution recognizes revenue from gifts, bequests and private grants in 



the year the cash is received. 



(k) Contributed Services and Facilities 



A substantial number of volunteers make significant contributions of their 

 time in the furtherance of the Institution's programs. The Institution also uses 

 certain facilities for a nominal charge. The value of the contributed time and 

 facilities is not reflected in these statements as it is not susceptible to objective 

 measurement or valuation. 



(1) Annual Leave 



The Institution's civil service employees earn annual leave in accordance with 

 federal laws and regulations. Annual leave for all employees is recognized as 

 expense as earned. 



(m) Cash and Balances with the U.S. Treasury 



Amounts represent cash deposited with financial institutions and balances 

 held by the U.S. Treasury which are available for disbursement. 



(2) Related Entities 



The Institution provides certain fiscal, procurement, and administrative ser- 

 vices to several separately incorporated organizations in which certain offi- 

 cials of the Institution serve on the governing boards. The amounts paid to 

 the Institution by these organizations for the aforementioned services, to- 

 gether with rent for Institutional facilities occupied, totaled $156,000 for the 

 trust funds and $75,000 for the federal funds for fiscal year 1994. 



Deposits held in custody for these organizations at September 30, 1994, 

 were $5,867,000 and $6,217,000 for trust and federal funds, respectively. 



Buildings 



Major renovations 



Nonexpendable equipment 



30 years 

 15 years 

 10 years 



Certain lands occupied by the Institution's buildings were appropriated 

 and reserved by Congress for the Institution and are not reflected in the 

 accompanying financial statements. Property and nonexpendable equipment 

 acquired through transfer from government agencies are capitalized at the 

 transfer price or fair value. 



Trust Funds 



Property and equipment purchased with trust funds for use by nonincome- 

 producing activities are recorded at cost, or appraised value at date of gift, 

 except for gifts of certain islands in the Chesapeake Bay and the Carnegie 

 Mansion, which have been recorded at nominal values. 



Capital improvements and equipment purchased with trust funds for use 

 by income-producing activities are capitalized at cost in the current funds. 



Property and equipment are depreciated on the straight-line basis over 

 their useful lives as follows: 



Buildings 



Major renovations 



Equipment 



30 years 



15 years 



3-10 years 



fh) Government Grants and Contracts 



The Institution receives grants and enters contracts with the U.S. government 

 and state and local governments which primarily provide for cost reimburse- 

 ment to the Institution. Governmental grant and contract revenue is recog- 

 nized as reimbursable expenditures are incurred. 



(3) Investments 



At September 30, 1994, investments comprised of the following: 



($000s) 





Carrying value 



Market value 



Current funds: 







Cash equivalents 



$ 21,988 



22,002 



U.S. government obligations 



38,284 



36,516 



Common stocks 



6 



5 





60.278 



58.523 



Plant funds: 







Common stocks 



1,111 



1,161 



U.S. government obligations 



125 



246 





1.236 



1.407 



Endowment and similar funds: 







Pooled investments: 







Cash equivalents 



9,668 



9,668 



U.S. government and 







quasi-govemment obligations 



109,357 



106,508 



Corporate bonds and 







other obligations 



43,981 



43,025 



Common and preferred stocks 



183.734 



2JU62 



Subtotal - pooled investments 



346.740 



377.563 



337 



