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CONSOLIDATED HOME SUPPLY DITCH AND RESERVOIR COMPANY NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED OCTOBER 31, 2000 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Business Description: Consolidated Home Supply Ditch and Reservoir Company was incorporated in 1882, under the laws of the state of Colorado. The company qualifies as a nonprofit organization. The Company is engaged in the distribution and transportation of water from three reservoirs (Lon Hagler, Lone Tree, and Boedecker (Mariano)] through ditches and canals. A summary of the Company's significant accounting policies applied in the preparation of the accompanying financial statements follows. Cash and Cash Equivalents: For purposes of preparing the statement of cash flows, demand deposits are considered cash. Machinery and equipment: ,Machinery and equipment are recorded at cost and depreciated using the straight-line method over useful lives of three to five years for office equipment, four to five years for vehicles and three to seven years for operating equipment. Water Storage and Carrying Facilities: These facilities are recorded at cost and, due to the permanent nature and indeterminable useful life, no depreciation has been recorded. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Income Taxes: Consolidated Home Supply Ditch and Reservoir Company is a nonprofit organization that is exempt from income taxes under Section 501(c) (12) of the Internal Revenue Code. Therefore, no provision or liability for income taxes is reflected in these statements. 8