MASTER ANNUAL REPORT

Frenchman’s Creek, Inc. and Subsidiary

Notes to Consolidated Financial Statements ______________________________________________________________________________________________________________

Note 1. Nature of Organization and Significant Accounting Policies (Continued) In conformity with industry practice, the Association recognizes the following common property as assets on its consolidated balance sheet: Common personal property, including furniture and fixtures, equipment and vehicles Common real property to which it has title or other effective ownership and that it can dispose of for cash while retaining the proceeds or is used to generate significant cash flows from members or from nonmembers on the basis of usage including the clubhouse and golf courses Future major repairs and replacements: The Association provides annually in its budget for certain future major repairs and replacements (see Note 5). It is the Association’s policy that major repairs or replacements to the clubhouse, beach club, golf courses and certain other recreational and common property are funded by member approved assessments and other sources of funds. For this reason the annual budget of the Associa- tion does not include a provision for reserve accounts for replacement or improvement to the Association’s rec- reational amenities and certain other common property. The budget of the Association does not provide for reserve accounts for capital expenditures and deferred maintenance that may result in special assessments. Owners may elect to provide for reserve accounts pursu- ant to the provisions of section 720.303(6), Florida statutes, upon approval of not less than a majority of the to- tal voting interests of the association. Income taxes: The Association files its federal income tax return under Internal Revenue Code Section 277, which requires segregation of member-related and nonmember-related activities (principally interest income and Realty’s operations). Member-related losses cannot be applied against nonmember-related income but may be carried forward to offset future member-related income. Member-related activity losses are referred to as deferred expense carryforwards and cannot be used to offset nonmember-related activity profits. Due to the nature of the Association’s operations, the Association believes it is remote that it would utilize either type of loss carryforward. As a result, it is the Association’s policy not to dis- close the deferred tax asset and related valuation allowances associated with the carryforwards. The Association has evaluated its tax positions and concluded that the Association has taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of the accounting guidance for uncertainty in income taxes within the Income Taxes Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). Member dues collected in advance: Member dues collected in advance are deferred and recognized as in- come as they are earned over the membership year.

2018/2019 Annual Report Page 36