The Maryland Transportation Authority's policy of accounting for toll facilities is pursuant to "betterment
accounting", whereby property costs represent a historical accumulation of costs expended to acquire rights-of-
way and to construct, reconstruct, and place in operation the various projects and related facilities. Costs also
include the cost of improvement, enlargement, betterments and certain general and administrative expenses
incurred during the construction phase. Subsequent betterments are capitalized. All such costs are not
reduced for subsequent replacements, as such replacements are accounted for as a period cost. Such period
costs are included in operation and maintenance of facilities. Depreciation of the projects and related facilities
is not included as an operating expense or otherwise provided. These policies are consistent with practices
followed by similar entities within the toll bridge, turnpike and tunnel industry.

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.

The Maryland Deposit Insurance Fund Corporation provides for insurance losses at the time a member
savings and loan association requires financial assistance or when such assistance is anticipated. These
amounts are reviewed periodically and adjusted as required based on the financial and economic conditions
at the time.

Inventories:

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

Enterprise Funds Reserved Retained Earnings:

Retained earnings of the Maryland State Lottery in the amount of $2,264,000 are reserved for the payment
of unclaimed prizes.

Retained earnings of Maryland Environmental Service in the the amount of $1,152,000 are reserved for
furtherance of program development activities.

D. Higher Education Fund:
Basis of Accounting:

The accounts of the higher education institutions are maintained and reported on the accrual basis of
accounting except as explained below concerning the recognition of tuition and fees revenue and depreciation.

Fund Accounting:

The financial activities of the higher education institutions are recorded in funds which classify the
various transactions by specified activities or objectives. Fund balances of current restricted, loan and
endowment funds are reported as reserved for higher education programs and higher education general
endowment funds.

Unrestricted revenue is accounted for in the current unrestricted fund. Restricted gifts, grants,
endowment income and other restricted resources are accounted for in the current restricted fund, loan funds,
endowment and plant funds. Revenue and expenditures are reported in the current restricted fund when
financial resources are used for the current operating purposes for which they have been provided.
Transactions related to the various student loan programs operated by the educational institutions are
accounted for in loan funds. Resources dedicated to the acquisition and investment in property, plant and
equipment are accounted for in the plant funds. To the extent current funds are used to finance plant assets,
the amounts so provided are accounted for as (1) expenditures, in the case of normal replacement of movable
equipment and library books; (2) mandatory transfers, in the case of required provisions for debt repayment
and interest, and equipment renewals and replacements; and (3) transfers of a nonmandatory nature in all
other cases.

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