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Barth Construction, Inc. NOTES TO FINANCIAL STATEMENTS (See Independent Accountants ' Review Report) September 30, 2011 NOTE A - SUMMARY OF ACCOUNTING POLICIES This summary of significant accounting policies of Barth Construction, * Inc. , is presented to assist in understanding the Company ' s financial statements. The accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. 1 . Revenue and Cost Recognition - Long Term Contracts Revenue is recognized on the percentage-of-completion method, measured by the percentage of costs incurred to date to estimated total costs of each contract. As the contract costs are incurred, estimated revenues are accrued in proportion to the estimated percentage of work performed on the contract. Estimated ultimate losses are determined and, if any, are recognized. Changes in job performances, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Costs and estimated earnings in excess of billings are classified under current assets as costs and estimated eaings in excess of billings on uncompleted contracts. Billings i rnn excess of costs and estimated earnings are classified under current liabilities as billings in excess of costs and estimated earnings on uncompleted contracts. 2. Cash and Cash Equivalents Cash and cash equivalents are comprised of cash in banks and money market accounts available on a demand basis. 3 . Bad Debts An allowance for bad debts is not provided, as management believes all accounts are collectable at September 3092011 * 4. Property, Equipment and Depreciation Property and equipment are stated at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated useful lives, using the straight-line method. Estimated useful lives follow. Office equipment 5 - 7 years Automobiles 5 years Machinery and equipment 5 - 7 years Leasehold improvements 15 years 5 . Profit Sharing The company established a Profit Sharing Plan effective October 1 , 1982, for the benefit of its employees. The employer contribution, based on employees ' current earnings, is $ 101 ,697 for the year ended September 30, 2011 . The employer contribution may not exceed fifteen ( 15 ) percent of qualified employees ' salaries. 6 . Income Taxes Deferred income taxes are provided for the differences in timing in reporting for financial statement and income tax purposes arising from differences in the methods of accounting for depreciation and revenue recognition and overhead expense allocation on long term construction contracts. - 7 - i