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<br />TUNNEL WATER COMPANY, INC. <br />NOTES TO FINANCIAL STATEMENTS <br />November 30, 1998 and 1997 <br /> <br />1. Siqnificant Accountinq policies <br /> <br />Nature of activities. Tunnel Water Company is a non-profit mutual <br />irrigation corporation. The company was formed to develop a vast <br />network of irrigating canals for agricultural purposes. The company <br />receives revenues based upon assessment of water shares owned. This <br />is used to improve and maintain the various irrigating properties. <br /> <br />Depreciation. The Company's property and.equipment is depreciated <br />using the straight-line method over the following estimated lives: <br /> <br />Reservoirs and ditches <br />Buildings <br />Furniture and fixtures <br />Transportation equipment <br />Machinery and equipment <br /> <br />90 years <br />40 years <br />8-10 years <br />8-10 years <br />8-10 years <br /> <br />Cash flows. For purposes of the statement of cash flows, the <br />Company considers all highly liquid investments with a maturity of <br />three months .or less to be cash equivalents. <br /> <br />Estimates. The preparation of financial statements in conformity <br />with generally accepted accounting principles requires the use of <br />management's estimates. <br /> <br />2. Related Partv Transactions <br /> <br />Assessment income for each year includes $33,000 of assessments on <br />stock held by Water Supply and storage Company, Inc., and its <br />directors. Water Supply and storage owns two-thirds of the <br />Company's outstanding stock. <br /> <br />3. Income Taxes <br /> <br />Tunnel Water Company, Inc. is incorporated under the laws of the <br />State of Colorado as a tax exempt organization under code section <br />501(C) (5). Therefore, no provision for income taxes is provided in <br />the accompanying financial statements. <br />