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. . . .li .~ .1 . .~ .) . .~ .3 .g .1 . .~ .i . .~ .~ . .~ :~ .~ . . ~. . ~ . e1i .~ . . '" @ . . ~ · iI . . ~ . . ~ . i'j :; . . ~ . ~ . . ~ . ~ . ~, . ~ . . . ~ . . ~ . NOTE 1. BERMELLO~ AJAMIL & PiL~TNERS, me. NOTES TO FlNi\NCIAL STA1EMENTS DECEMBER 31, 2005 AND 2004 SlJMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Bermello, Ajamil & Partners, Inc. (the "Company"), incorporated in the State of Florida, provides services such as architectural, civil and environmental engineering, landscape, planning and interior design. These various services are performed under fixed-price contracts, fixed-price contracts modified by incentive and performance provisions, time and ~aterials contracts, percentage of cost of construction contracts and cost plus fee contracts, The length of the Company's contracts vary but are typically greater than one year. Revenue and Cost Recognition Revenues from fixed-price and modified fixed-price contracts are recognized on the percentage-of-completion method.. Accordingly, income from the fixed-price contracts is measured by the percentage that costs incurred to date bear to estimated total costs after giving effect to estimated costs to complete. Fees for percentage of cost of construction contracts are based on a percentage of final construction costs and revenues are recognized on the percentage-of-completion method, Revenues from cost plus fee contracts are recognized on the basis of costs incurred during the period plus the fee eamed, Revenues from time and materials contracts are recognized currently as the work is performed. Individual contracts that are closely related and are in effect part of a single project with an overall profit margin are combined for price recognition purposes, so that revenues and profits are earned and reported uniformly over the performance of the combined contracts_ Contract costs include all direct material and labor costs incurred, Indirect costs include indirect labor, supplies, rented equipment, repairs and all other general and administrative costs, Provisions for estimated losses on uncompleted contracts are recorded in the period in which such losses are determined, Changes injob performance, job conditions, estimated profitability and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. An amount equal to contract CDsts attributable to claims is included in revenues when realization is probable and the amount can be reasonably estimated. The as~et "costs and estimated earnings in excess of billings on uncompleted contracts" represents revenues recognized in excess of anlOunts billed. The liability "billings in excess of costs and estimated earnjngs on uncompleted contracts" represents billings in excess of revenues recognized, -7-