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CERES ENVIRONMENTAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2016 NOTE 1 -Summary of Significant Accounting Policies (cont.) • The asset, "Costs and estimated earnings in excess of billings on uncompleted contracts,"represents revenues recognized in excess of amounts billed. The liability, "Billings in excess of costs and estimated earnings on uncompleted contracts," represents billings in excess of revenues recognized. Revenues from sales of mulch, rents, and snow removal services are recognized from these activities when sales are made or as services are performed. Use of Estimates-The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. See the"revenue and cost recognition"accounting policy for the estimationprocess relating to construction contracts. Cash Equivalents-The Company defines cash equivalents as short-term, highly liquid, interest bearing investments that have a maturity at the date of acquisition of three months or less. Short-Term Investments-Short-term investments consist of a certificate of deposit which is held to maturity and recorded at amortized cost. The cost approximates market value on this short-term investment. Maturities of short-term investments are longer than three months but less than one year. Inventories-Inventories consist of mulch and other landscaping finished goods, as well as fuel, and is accounted for at the lower of cost, using the first-in, first-out(FIFO) method, or market. Exchanges of Nonmonetary Assets-The accounting for nonmonetary transactions is based on the fair values of the assets or services involved in the exchange. The Company did not recognize any gains or losses related to the trade-in of property and equipment during the year ended December 31, 2016. Long-Lived Assets-Long-lived assets to be held and used are tested for recoverability whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.When required, impairment losses on assets to be held and used are recognized based on the excess of the asset's carrying amount over the fair value of the asset. The Company did not recognize any impairment losses during the year ended December 31, 2016. Property and Equipment-Property and equipment items are recorded at cost less depreciation to date. Construction equipment(net of salvage values), office furniture and equipment, and buildings are depreciated over their estimated useful lives using the straight-line method. Leasehold improvements are amortized over their estimated useful lives using the straight-line method, and amortization is included as a component of depreciation expense. Repairs and maintenance costs are charged to expense as incurred; improvements and additions are capitalized. Property and equipment sold, retired, or otherwise disposed of is removed from the asset and accumulated depreciation accounts, and any gains or losses thereon are reflected'in operations. Estimated useful lives are summarized as follows: Years Construction equipment 3-.10 Office furniture and equipment 3-15 Leasehold improvements 10 CONFIDENTIAL& PROPRIETARY Page 8