Annual Rept 2015.publisher. full report

Frenchman’s Creek, Inc. and Subsidiary

Notes to Consolidated Financial Statements

Note 1.

Nature of Organization and Significant Accounting Policies (Continued)

Fair Value Measurements: Generally accepted accounting principles establish a framework for measuring fair value, and expand dis- closures about fair value measurements. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. Under this guidance, assets and liabilities carried at fair value must be classified and disclosed in one of the following three categories:

Level 1 – Quoted market prices in active markets for identical assets or liabilities.

Level 2 – Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3 – Unobservable inputs that are not corroborated by market data.

The Association’s recurring fair value measurement is for deferred compensation investments and the interest rate swap agree- ment, which is based on the London Interbank Offered Rate (“LIBOR”) swap rate. The LIBOR swap rate is observable at com- monly quoted intervals for the full term of the swap and, therefore, is considered a Level 2 input (see Note 7). The Association’s fair value measurement for deferred compensation investments is Level 1 (see Note 6).

Fund Accounting: The assets, liabilities and fund balances of the Association are reported in two self-balancing funds, as follows:

The Operating Fund includes all resources other than assessments and interest income allocated to the Replacement Fund. The Operating Fund reports the revenues and expenses of operating and maintaining the Association’s facilities and the ac- tivities of Realty.

The Replacement Fund reflects the accumulated funds and related interest income for the purpose of certain future major repairs and replacements. Major repairs and replacements are expensed as incurred and charged to this Fund.

Operating Income (Loss)/Performance Measurement: The Association considers the excess or (deficiency) of revenues over expens- es before other revenue (expenses) on the accompanying consolidated statements of revenues and expenses and changes in fund balances to be operating income (loss) for performance measurement purposes, as this is the line item to which it budgets for financial management and internal reporting purposes. Revenue Recognition: Member dues are recognized as revenue on a pro rata basis over the period covered by the billing. Food, beverage, tennis, golf activities, fitness and golf shop sales revenue are recognized at the point of sale. Security badge, commercial vehicle fees and architectural review board fees are recognized as revenue when billed.

Capital assessments are recognized as changes in fund balances when received.

2014/2015 Annual Report Page 35