Federal capital funds represent the value of those assets of the Institution ac- 

 quired with federal funds and nonexpendable properrv transfers from govern- 

 ment agencies 



Trust current funds, which include unrestricted and restricted resources, rep- 

 resent the portion of non-appropnared funds available for support of Institu- 

 tion operations. Separare subfund groups ot current unrestricted funds have 

 been reflected in the financial statements for auxiliarv activities (representing 

 primarily the revenue and expendirures of the Smithsonian Associate Pro- 

 grams, including Smithsonian magazine and Air & Space I Smithsonian maga- 

 zine, museum shop and mail order sales) and for special purposes 

 (representing internally segregated funds for certain designated purposes) 

 Amounts restricted by the donor for specific purposes are segregated from 

 other current funds. 



Trust endowment and simuar funds include funds that are subject to restnc- 

 tions of gift instruments requiring in perperuiry that the principal be invested 

 and that only income be utilized. Also classified as endowment and similar 

 funds are gifts which allow the expenditure of principal only under certain 

 specified conditions Quasi-endowment funds are funds established by the 

 governing board for the same purposes as endowment funds; however, any 

 portion of such funds may be expended with board approval Restncted quasi- 

 endowment funds represent gifts for resrncted purposes where there is no stip- 

 ulation that the principal be maintained in perpetuity or for a period of time, 

 but the governing board has elected to invest the principal and expend only 

 the income for the purpose stipulated by the donor. 



Trust plant funds represent resources restncted for future plant acquisitions 

 and funds expended for plant. 



lnterfund Balances 



Interfund balances result from short-term advances/ borrowings between Insti- 

 tution funds and are repaid, without interesr. on a continual basis. 



Investments 



All investment income, except that of endowment and similar funds, and 

 gains and losses arising from the sale of investments and property, are ac- 

 counted for in the fund in which the related assets are recorded Income of 

 endowment and similar funds is accounted for in the fund to which it is re- 

 stncted or, if unrestricted, as revenue in unrestricted current funds. Gains and 

 losses on the sale of investments are recognized on the trade date basis using 

 the average cost method. 



Inventory 



Inventoncs are earned at the lower of cost or market. Cost is determined using 

 the first-m. first-out (FIFO) method, standard cost method or retail cost 

 method (for those inventoncs held for resale). 



Deferred Revenue and Expense 



Revenue from subscriptions to Smithsonian magazine and Air & Space /Smith- 

 sonian magazine is recorded as income over the penod of the related subscrip- 

 tion, which is generally one year. Costs related to obtaining subscriptions to 

 Smithsonian magazine and Air & Space I Smithsonian magazine are charged 

 against income over the penod of the subsenprion. 



The Institution recognizes revenue and charges expenses of other auxiliary 

 activities during the period in which the activity is conducted 



Works of Art, Living or Other Specimens 



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

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

 federal or private funds or by donation. In accordance with policies generally 

 followed by museums, no value is assigned ro the collections on the statement 

 ot financial condition. Purchases for the collections are expensed currently. 

 Proceeds from de-accessions are designated for future collection acquisitions. 



Property and Equipment — Federal Funds 



Property and equipment purchased with federal funds are recorded in the cap- 

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

 as follows: 



Buildings 



Major renovations 



Nonexpendable equipment 



30 yean 

 15 years 

 10 years 



Certain lands occupied bv the Institution's buildings were appropriated and 

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

 panying financial statements. Properrv and nonexpendable equipment ac- 

 quired through transfer from government agencies are capitalized at the 

 transfer price or at estimated amounts, taking into consideration usefulness, 

 condition and market value. 



Property and Equipment — Trust Funds 



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

 producing activities arc recorded at cost, or appraised value at date of gift, ex- 

 cept for gifts of certain islands in the Chesapeake Bay and the Carnegie Man- 

 sion, which have been recorded at nominal values. Property and equipment 

 arc treated as a deduction of the currcnr fund and as a capitalized cost of the 

 plant fund. 



Propcry and equipment for use bv nonincome-producing activities is depre- 

 ciated on the straight-line basis over their useful lives as follows: 



Buildings 



Major renovations 



Equipment 



30 years 

 1 5 yean 

 10 yean 



Depreciation is recorded in the plant fund as a deduction to the investment 

 in plant. 



Capital improvements and equipment purchased with trust funds and uti- 

 lized in income-producing activities are capitalized at cost in the current fund 

 and are depreciated on a straight-line basis over their estimated useful lives of 

 3 to 10 yean. 



Government Grants and Contracts 



The Institution has a number of granu and contracts with the U.S. Govern- 

 ment, which primarily provide for cost reimbursement to the Institution. Gov- 

 ernmental grant and contract revenue is recognized within trust funds as 

 expenditures are incurred. 



Pledges 



The Institution generally records pledges based upon letten signed by donon. 

 Pledges are recorded at net realizable value as a receivable and as deferred rev- 

 enue on the statement of financial condition. Revenue from pledges is recog- 

 nized in the year the pledged funds are collected. 



Gifts, Bequests and Other Grants 



The Institution recognizes revenue from gifts, bequests and other grants in the 

 year the rash is received 



Contributed Services 



A substantial number of unpaid volunteers have made significant contribu- 

 tions of their time in the furtherance of the Institution's programs. This con- 

 tnbuted time is not reflected in these statements since no objective basis is 

 available to determine the value of these services. 



Annual Leave 



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

 federal laws and regulations. However, only the cost of leave taken as salaries is 

 funded and recorded as an expense. The cost of unused annual leave at year- 

 end is reflected in the accompanying financial statements as an asset and an ac- 

 crued liability in the federal funds. 



Annual leave for trust employees is accrued as a liability and expensed in the 

 trust fund, as earned. 



2 . Related Activities 



The InsticuDon provides certain fiscal and administrative services to several 

 separately incorporated organizations in which certain officials of the Institu- 

 tion serve on the governing boards. The amounts paid to the Institution by 



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