Finance and Administration - Board of Trustees - The University of ...

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - Informationcommercial paper at June 30, 2011. All other investments arereported at fair value or estimated fair value.The university holds investments in limited partnerships, limitedcompanies, corporations, and limited liability corporationswhich are carried at estimated fair value provided by themanagement of these funds. The purpose of this alternativeinvestment class is to increase portfolio diversification andreduce risk due to the low correlation with other asset classes.Methods for determining estimated fair values includediscounted cash flows and estimates provided by generalpartners and fund managers. Because these investments arenot readily marketable, the estimated fair value is subject touncertainty and, therefore, may differ from the value that wouldhave been used had a ready market for the investments existed,and such differences could be material. The estimated fairvalues are reviewed and evaluated by the university.G. CAPITAL ASSETSCapital assets, which include property, plant, equipment,software, and library holdings, are reported in the statement ofnet assets at historical cost or at fair value at date of donation,less accumulated depreciation. The costs of normal maintenanceand repairs that do not add to the value of the assets ormaterially extend the assets’ useful lives are not capitalized.A capitalization threshold of $100,000 is used for buildings,land improvements, and infrastructure. Equipment and softwareare capitalized when the unit acquisition cost is $5,000 orgreater and the estimated useful life is one year or more.The capitalization threshold for additions and improvementsto buildings, infrastructure, and land improvements is also$100,000. The capitalization threshold for additions andimprovements to buildings is $100,000 provided that amountexceeds 20% of the book value of the building.These assets, with the exception of land, are depreciated/amortized using the straight-line method over the estimateduseful lives of the assets, which range from 5 to 40 years.H. ACCOUNTS PAYABLEIncluded in accounts payable are checks payable in the amountof $683,487.86 as of June 30, 2011. These amounts representthe sum of checks written in excess of the university’s checkingaccount balance because of the use of a controlled disbursementaccount. In this way, the university maximizes interest incomeby transferring from an investment account only fundsnecessary to cover the checks that clear the bank daily.I. COMPENSATED ABSENCESThe university’s employees accrue annual leave at varying rates,depending on length of service or classification. Some employeesalso earn compensatory time. Generally, all permanent full-timeemployees and certain part-time employees are entitled to accrueand carry forward calendar year maximums of 42 days annualvacation leave, except nine-month faculty members who do notaccrue annual leave. The amount of these liabilities and theirrelated benefits are reported in the statement of net assets.J. NET ASSETSThe institution’s net assets are classified as follows:Invested in Capital Assets, Net of Related Debt: Thisrepresents the institution’s total investment in capital assets, netof outstanding debt obligations related to those capital assets.To the extent debt has been incurred but not yet expended forcapital assets, such amounts are not included as a component ofinvested in capital assets, net of related debt.Nonexpendable Restricted Net Assets: Nonexpendablerestricted net assets consist of endowment and similar typefunds in which donors or other outside sources have stipulated,as a condition of the gift instrument, that the principal is to bemaintained inviolate and in perpetuity, and invested for thepurpose of producing present and future income, which may beexpendable or added to principal.Expendable Restricted Net Assets: Expendable restricted netassets include resources in which the university is legally orcontractually obligated to spend resources in accordance withrestrictions imposed by external third parties.Unrestricted Net Assets: Unrestricted net assets representresources derived from student tuition and fees, stateappropriations, and the sales and services of educationaldepartments, and auxiliary enterprises. These resources areused for transactions relating to the educational and generaloperations of the institution, and may be used at the discretionof the institution to meet current expenses for any purpose.K. SCHOLARSHIP DISCOUNTS ANDALLOWANCESStudent tuition and fee revenues, and certain other revenuesfrom students, are reported net of scholarship discounts andallowances in the statement of revenues, expenses, and changesin net assets. Scholarship discounts and allowances are thedifference between the stated charge for goods and servicesprovided by the university and the amount that is paid by thestudent and/or third parties making payments on the student’sbehalf.Certain governmental grants, such as Pell grants, and otherfederal, state, or nongovernmental programs, are recorded aseither operating or nonoperating revenues in the institution’sfinancial statements. To the extent that revenues from suchprograms are used to satisfy tuition and fees and other studentcharges, the institution has recorded a scholarship discount andallowance.L. INCOME TAXESThe university, as a public corporation and an instrumentalityof the State of Tennessee, is exempt from federal income taxesunder Section 115 of the Internal Revenue Code. Contributionsto the university are deductible by donors as provided underSection 170 of the Internal Revenue Code.31345