Depreciation of the cost of property, plant and equipment of the Maryland Food Center Authority,
Maryland State Lottery, State Use Industries, Maryland Higher Education Loan Corporation and the
nonexpendable trust fund is provided on the straight-line basis over estimated useful lives of 25 to 50 years for
depreciable real property, 5 to 10 years for building improvements and 3 to 10 years for equipment. Repairs
and maintenance are charged to operations in the period incurred. Replacements, additions and betterments
are capitalized.

In accordance with retirement-replacement-betterment accounting principles, the cost of toll facilities is
not depreciated. Repairs, maintenance and replacements are charged to operations in the period incurred.
Additions and betterments are capitalized.

The cost of property, plant and contributed equipment of the Maryland Environmental Service is not
depreciated and such amount is not material in relation to the combined enterprise funds. Depreciation of the
cost of purchased equipment is provided on the straight-line basis over an estimated useful life of three years.
Repairs and maintenance are charged to operations in the period incurred. Replacements, additions and
betterments are capitalized.

Lottery Revenues and Prizes:

Revenues and prizes of the Maryland State Lottery are generally recognized as drawings are held. Certain
prizes are payable in deferred installments. Such liabilities are recorded at the present value of amounts
payable in the future.

Provisions for Insurance and Loan Losses:

Current provisions are made for estimated losses resulting from insurance of loans and uncollectible
loans. LOSS provisions are based on the current status of insured and direct loans, including delinquencies,
economic conditions, loss experience, estimated value of collateral and other factors which may affect their
realization.

Workers' compensation claims are recognized as expenses in the period incurred. Annually, the consulting
actuary for the State Accident Fund estimates the liability for injuries incurred but not reported, the future
liability on claims before the commission, and permanent awards. These liabilities are reported as accrued
insurance losses.

Inventories:

Inventories of the Maryland Transportation Authority, State Use Industries and the nonexpendable trust
fund are stated at the lower of cost, using the first-in, flrst-out method, or market.

Enterprise Funds Reserved Retained Earnings:

Retained earnings of the Maryland Transportation Authority in the amount of $149,834,000 are reserved
for the payment of debt service related to the revenue bonds, major project maintenance requirements and
improvements, betterments, enlargements, or capital additions.

Retained earnings of the Maryland State Lottery in the amount of $3,333,000 are reserved for the
payment of unclaimed prizes.

Nonexpendable and Pension Trust Fund Balances:

Fund balances of nonexpendable and pension trust funds are restricted to the purpose of the fund and are
reported as fund balance reserves.

D. Higher Education and University Hospital Fund:
Basis of Accounting:

The accounts of the higher education institutions and the University of Maryland Hospital are maintained
and reported on the accrual basis of accounting.

Fund Accounting:

The financial activities of the higher education institutions and the University of Maryland Hospital are
recorded in funds which classify the various transactions by specified activities or objectives. Fund balances of
such funds are reported as reserved for higher education programs and higher education general endowment
and similar funds.

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