Messenger - Vol. 1, No. 3, Page 6
Spring 1992
University of Delaware Annual Report
Summary of Significant Accounting Policies
UNIVERSITY OF DELAWARE
Summary of Significant Accounting Policies
June 30, 1991
The significant accounting principles and practices followed by
the University of Delaware are presented below to assist the reader in
analyzing the financial statements and accompanying notes.
Certain amounts have been reclassified in the prior year to
conform to correct year classifications.
Fund Accounting
The accounts of the University are maintained in accordance with
the principles of "fund accounting". This is the procedure by which
resources for various purposes are classified for accounting and
reporting purposes into funds that are in accordance with activities
or objectives specified. Separate accounts are maintained for each
fund; however, in the accompanying financial statements, funds that
have similar characteristics have been combined into the following
four fund groups:
Current Funds
Loan Funds
Endowment and Similar Funds
Plant Funds
All fund groups are separated into those that are restricted by
donors or grantors and those that are unrestricted. Restricted funds
may only be expended for the purpose indicated by the donor/grantor,
whereas unrestricted funds are under the control of the Trustees of
the University to use in accordance with its Charter and Bylaws.
There are three financial statements presented under the
principles of fund accounting:
Balance Sheet is a listing of the assets, liabilities and fund
balances as of the end of a fiscal year.
Statement of Current Funds Revenues, Expenditures, Transfers and
Changes in Fund Balances is a summary of the financial activity of
the current funds during a fiscal year. It does not represent the
entire operations of the period (there is financial activity recorded
in the other funds), nor does it reflect the net income or loss for a
fiscal year.
Statement of Changes in Fund Balances is a summary of all the
additions to and deductions from each of the major fund groups and
subgroups during a fiscal year. This statement provides an overview
of the University's financial activity during a fiscal year.
All unrestricted funds and funds restricted for current
operations are reported as revenues in the Statement of Current Funds
Revenues, Expenditures, Transfers and Changes in Fund Balances during
the year received or accrued with the exception of gains on sales of
investments of the endowment and similar funds.
All other restricted funds are recorded as additions to the
appropriate fund balance in the Statement of Changes in Fund Balances
when received or accrued.
Explanation of Transfers and Allocations
Mandatory transfers to other funds
- transfers made in accordance with contractual agreements
relative to debt service and Federal loan programs.
Other transfers to other funds
- all other financial transactions between fund groups.
Allocations
- represent the setting aside of current funds for specific
purposes for expenditure in a subsequent year.
Auxiliary Operations
The operation of auxiliaries is supplementary to the primary
educational function of the University. Accordingly, the University
annually provides from auxiliary enterprises revenues, provisions for
debt service and renewal and replacement of equipment. Auxiliary
operations primarily include the residence and dining halls, the
bookstore, and student health service.
Investments
Investments in stocks, bonds, notes, mortgages and plant assets
are stated substantially at cost.
Endowment and Similar Funds
The endowment and similar funds are subdivided into appropriate
classifications. Endowment funds have been received from benefactors
who, by the terms of their conveying instruments, have stipulated that
the principal of their gifts may never be expended. Expenditures from
the principal of funds functioning as endowment are not similarly
prohibited; however, in certain cases the principal is restricted to
purposes specified by the donor. Realized gains on sales of
investments of the endowment and similar funds are recorded as
additions to principal funds.
Funds Held in Trust by Others
The University is the beneficiary of irrevocable trust funds held
by others with an approximate market value of $36,663,000 ($35,407,000
- 1990). There are also other trust funds, the principal and market
value of which are not ascertainable, that benefit the University.
Since the University does not have possession of these trusts, the
principal is not reflected in the accompanying balance sheets.
Taxes
The Internal Revenue Service has ruled that the University is a
tax exempt institution; accordingly, no provision for taxes has been
made in the financial statements.
Pensions
Substantially all faculty and professional members are provided
pension benefits under the University's Retirement Annuity Program
administered principally by the Teachers Insurance and Annuity
Association. The policy of the University is to pay its share of the
annual premium accrued in connection with the University Retirement
Annuity Program; there are no unfunded benefits. Pension plan
expense for the University Retirement Annuity Program was $8,566,000
in 1991 and $7,730,000 in 1990. All other employees are provided
pension benefits under the State of Delaware Pension Plan. Pension
expense applicable to University employees covered by the State of
Delaware Pension Plan was $3,129,000 in 1991 and $3,187,000 in 1990.
Plant Funds
Land is recorded at cost, or appraised value at time of receipt
if contributed, including land deeded by the Board of Trustees of
Delaware College to the State of Delaware in the early 1900's and
thereafter used by the College and University, as successor, for the
purposes of the College and University. Buildings are recorded at
cost of initial construction, including buildings on land deeded to
the State and thereafter used for the purposes of the College and
University. Costs of major renovations to buildings are capitalized.
Costs of equipment in excess of $1,000 and $500 as of June 30, 1991
and 1990, respectively, with a useful life expectancy of two or more
years are also capitalized.
As further described in note (5), the University adopted the
provisions of Financial Accounting Standards Board Statement No. 93,
"Recognition of Depreciation by Not-For-Profit Organizations". The
University uses the straight-line method of depreciation based upon
the following estimated useful lives:
Estimated lives (years)
Land improvements 15
Buildings 40
Equipment and furnishings 5 - 20
(1) Investments
Market value of investments, exclusive of plant, on June 30:
1991 1990
(000's) (000's)
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Current unrestricted and University
allocated funds $ 53,029 50,202
Current restricted funds 14,529 15,901
Loan funds 3,240 5,055
Endowment and similar funds 356,213 326,271
Unexpended plant funds 26,674 29,299
Renewal and replacement funds 12,409 11,001
Retirement of indebtedness funds 433 894
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$466,527 438,623
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Consisting of:
United States government obligations $107,823 105,492
Commercial paper 40,764 64,847
Certificates of deposit 1,219 881
Corporate bonds and notes 97,474 75,674
Stocks and convertible securities 193,726 169,143
Mortgages 12,246 12,358
Cash value of life insurance policy 386 381
Money market and other liquid funds 8,308 6,857
Investment in limited partnership 2,583 2,879
International mutual funds 1,895 -
Other 103 111
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$466,527 438,623
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These investments are carried on the balance sheet at a cost of
$348,501,000 ($335,783,000 in 1990). The dividends and interest
from such investments during the periods were as follows:
1991 1990
(000's) (000's)
------- -------
Unrestricted(a) $ 23,573 23,083
Restricted 6,308 6,562
------- -------
$ 29,881 29,645
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Earnings of funds held in trust by others distributed to the
University:
1991 1990
(000's) (000's)
------- -------
Unrestricted $ 1,576 1,712
Restricted 354 368
------- -------
$ 1,930 2,080
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At June 30, 1991, the excess of market value over cost for those
equity securities having such excess was $113,955,989 and the excess
of cost over market value for those equity securities having such
excess was $1,044,319.
(a) Includes interest from Auxiliary Operations and Activities of
Educational Departments
of $1,137,266 in 1991 ($1,130,000 in 1990).
(2) Loan Funds' Notes and Accounts Receivable
Loan funds' notes and accounts receivable consisted of the
following:
June 30
(000's)
1991 1990
------- -------
Student loan programs $ 9,599 9,194
University Mortgage Program 2,119 2,372
Other 122 123
------- -------
$ 11,840 11,689
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The student loan programs consist primarily of the National
Direct Student Loan/Perkins and Nursing Student Loan Programs. The
United States Government provides 90% of the funds and the University
provides 10% of the funds to support these programs.
The University Mortgage Program provides home mortgages for
faculty and professional members. On March 1, 1978, the University
issued its $10,000,000 general obligation bonds (Series of 1978).
These bonds provided funds for the mortgage program. Additional
mortgages are provided by University endowment resources.
(3) Capital Program
Estimated capital cost of fourteen approved construction projects
that have budgets in excess of $500,000 amounts to approximately
$70,837,000 (unaudited) at June 30, 1991. Costs incurred to date on
such projects total approximately $28,222,000.
(4) Indebtedness
In October 1989, the University issued $41,195,000 of Series 1989
Revenue Bonds and $9,985,000 of Series 1989 Special Obligation Bonds.
A portion of the Series 1989 Revenue Bond Proceeds and all of the
Series 1989 Special Obligation Net Bond Proceeds together with the
accounts associated with the Refunded Bonds were placed in an
irrevocable trust and used to purchase government securities to
provide for the principal and interest on the Housing and Dining
System Revenue Bonds at their respective maturities. Additionally,
the investment earnings on the government securities will also be used
to pay the principal and interest on the series 1989 Special
Obligation Bonds when due. The defeasance resulted in a gain of
$2,139,885 and is reflected as an addition in the "Investment in
Plant" Fund for the year ended June 30, 1990. In accordance with
generally accepted accounting principles, the Housing and Dining
System revenue and the Special Obligation Bonds payable (amounting to
$26,861,000 and $29,219,000 at June 30, 1991 and 1990, respectively)
and the assets of the Trust are not included in the accompanying
Balance Sheet.
The remaining portion of the Series 1989 Revenue Bond proceeds
will be used to renovate, construct and equip certain of the
University's housing, dining, and student health services facilities
and to prepay an existing loan for the Ice Arena.
The Series 1989 Revenue Bonds bear interest rates ranging from 6%
to 7% and mature at various dates through November, 2014. The
aggregate amount of principal payments required through June 30, 1996
is as follows: 1992-$1,040,000; 1993-$1,100,000; 1994-$1,170,000;
1995-$1,245,000; and 1996-$1,325,000. The bonds are secured by a
pledge of gross revenues received by the University from the operation
of all project facilities including housing, dining, student health
services, and the ice arena.
A general obligation bond indenture with a principal balance of
$10,000,000 was issued in March 1978 to fund the University's Mortgage
Program. The bonds carry annual interest rates of 3.70% to 5.65% and
mature annually through 2000. The bonds are secured by: (a) a pledge
of all revenues and receipts derived from the mortgage programs, (b) a
pledge and assignment to the trustee of program mortgages and (c) a
pledge of the University's full faith and credit for the payment of
the principal and interest payments. The aggregate amount of
principal payments required through June 30, 1996, is as follows:
1992-$415,000; 1993-$405,000; 1994-$375,000; 1995-$350,000; and
1996-$325,000.
Notes payable by the University total $7,791,000 at June 30,
1991($7,115,000-1990). The notes bear an average interest rate of 5.9%
at June 30, 1991 (7.9% at June 30, 1990). The aggregate amount of
principal payments required through June 30, 1996, is estimated as
follows: 1992-$1,953,000; 1993-$1,940,000; 1994-$1,366,000;
1995-$220,000; and 1996-$220,000.
(5) Investment in Plant
In 1991, the University adopted the provisions of Financial
Accounting Standards Board Statement No. 93, "Recognition of
Depreciation by Not-for-Profit Organizations". Statement No. 93
requires organizations to restate their long-lived tangible assets at
cost less accumulated depreciation in the year of adoption and for all
years presented. Accordingly, the net investment in plant balance as
of July 1, 1989, has been restated as follows:
Net investment in plant as previously reported $ 381,416
Adjustment to record accumulated depreciation
related to prior years (197,456)
To record plant asset inventory adjustments 397
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Net investment in plant as restated $ 184,357
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