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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 1996
 



1 Principal activities

The Center for the Study of Democracy (hereafter ”CSD“ or the ”Center“) is an independent not for profit, public policy research organisation founded in late 1989.

Its main activities are concentrated in the organisation and operation of programs including economic, law reform, sociological and information resources aiming at speeding up the market oriented development of the Bulgarian economy and democratisation of the Bulgarian society. The programs are financed by West European and American not for profit organisations, governmental institutions and private companies such as American Bar Association, Center for International Private Enterprise (U.S.A.), Commission of the European Communities, Council of Europe, C. S. Mott Foundation, Hanns Seidel Foundation (Germany), International Center for Economic Growth, US Agency for International Development and World Bank.

Other activities include publishing of materials and distribution.

2 Principal Accounting Policies

CSD’s accounting policies are established in compliance with the Bulgarian Accountancy Act, the Bulgarian National Accounting Standards, and the United States Circular A-133 Standard concerning ”grants and agreements with Institutions of Higher Education, Hospitals and other Nonprofit Organizations“, as well as with the requirements set under Standard A-122 (Cost Principles for Nonprofit Organizations).

Revenue recognition

The Center’s revenue arises from its activities relating to projects financed by third parties. The activity can be divided into the following types:

  • restricted funds, representing funding for specific projects; and

  • unrestricted funds for general expenditures and maintenance.

Project revenue is recognised based upon stipulations and duration of the contract with the organisation requesting the project. Project revenue can be recognised upon completion of a stage in the project or upon completion of the project and submission of the final report.

At the end of each year a review of each project is performed. Amounts received in excess of the estimated work performed are deferred and disclosed in the balance sheet as part of deferred revenue. The estimated value of work performed in excess of the amounts received is recorded as project receivables thus matching concept is being observed.

Revenue earned from the act of publishing and distributing of books is recognised at the point of sale.

Taxation

The CSD is a not for profit organisation and is exempt from corporate taxation and VAT on its not for profit activities.

Foreign currency

Transactions in other currencies have been translated into Bulgarian Leva at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Bulgarian Leva at the exchange rate ruling at that date. All resulting exchange differences are recognised in arriving at the result for the year and are disclosed in other income (expense). Foreign currency accounts are maintained by using the FIFO method.

USD to Leva foreign exchange rates were the following for the respective periods:

At 31.12.1995
70,704
At 31.12.1996
487,350
Average for 1995
68
Average for 1996
178

 

Inflation accounting

Consistent with other entities operating in Bulgaria, International Accounting Standard No 29 ”Financial Reporting in Hyper-inflationary Economics“ has not been applied despite the hyper-inflationary environment, as defined by IAS 29, in Bulgaria. The annualised rate of inflation for 1996 was 311% (1995 32.9%).

The effect of performing hyperinflation adjustments would be to increase the value of the non-monetary balances of the organisation to account for the loss in purchasing power as a result of inflation. However the majority of the organisations funds are received in foreign currency and converted to local currency only as required. The loss of purchasing power caused by inflation is therefore substantially avoided.

Related party transactions

The Center for the Study of Democracy has had transactions with the Applied Research and Communications Fund (ARC) during 1996. The two have different members of the Board of Directors, different operational employees but occupy the same premises. Amounts receivable from and payable to the ARC as at 31 December 1996 are Nil.

3 Other income

Other income in Leva’000 for the period included the following:

 
Realized
Unrealized
1996
1995
         
Foreign exchange gains
32,484
146,457
178,941
5,215
Foreign exchange losses
(170)
(24,673)
(24,843)
(3,185)
Interest income
1,725
-
1,725
698
Other income (expense
(1,223)
(1,221)
34
Total
32,816
121,784
154,601
2,762
         
4  Cash at bank and in hand               
                                                               
 
1996
1995
 
Leva’000
Leva’000
Deposits-foreign currency
16,115
7,682
Deposits-Leva
247
50
Cash at bank-foreign currency
180,824
11,125
Cash at bank-Leva
436
1,400
Cash in hand-foreign currency
8,010
389
Cash in hand-Leva
1,021
125
 
 
206,653
20,771


5 Receivables
 
1996
1995
 
Leva’000
Leva’000
Other receivables
14,376
3,015
Investment receivable
230
230
Project receivable
21,070
3,894
 
 
35,676
7,139

6 Fixed assets

The Center acquires its fixed assets through purchases with its own funds or by obtaining the fixed assets upon the completion of projects. Assets are valued on the basis of acquisition cost and are shown at cost less accumulated depreciation. Depreciation is charged on a straight-line basis and the following rates are applied:

Machinery and equipment
20%
Vehicles
20%
Office furniture and equipment
25%
Software
20%

 

The activity for tangible assets for 1996 is as follows:

 
1996
 
Leva’000
Cost or valuation
At 1 January 1996
12,416
Additions
2,676
Disposals
(880)
At 31 December 1996
14,212
Accumulated Depreciation
At 1 January 1996
3,681
Charge for the year
2,793
Less disposal
(819)
At 31 December 1996
5,655
Net book value
At 31 December 1996
8,557

 

7 Long-term liabilities

 

 
1996
1995
 
Leva’000
Leva’000
 
Deferred capital subsidies
1,547
395
 

Deferred capital subsidies consist of the remaining balance of funds received for specific projects.

8 Reconciliation between local statutory reporting and these financial statements

 

 
Leva’000
Surplus for the year per local statutory reporting
55,598

Adjustments for recognition of unrealised gains (losses) on amounts held in foreign currency as follows:

 

Cash
131,144
Receivables and deferred expenses
(958)
Liabilities
(8,402)
Surplus per IAS financial statements
177,382

 

9 Reconciliation of excess of income over expenditure to net cash outflow from operating activities.

 

 
1996
1995
 
Leva’000
Leva’000
Excess of income over expenditure
177,382
12,506
Depreciation
2,793
1,840
Loss on sale of fixed assets
62
52
Increase of receivables and deferred expenses
(28,682)
(2,017)
Increase(decrease) of payables
35,852
(1,023)
 
Net cash from operating activities
187,407
11,358

 

   
 
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