3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Liquidation Basis of Accounting – As a result of the approval of the Plan of Liquidation, the Company adopted the liquidation basis of accounting, effective January 1, 2011. Under the liquidation basis of accounting the following financial statements are no longer presented (except for periods prior to the adoption of the liquidation basis of accounting): a consolidated balance sheet, a consolidated statement of operations and a consolidated statement of cash flows. The consolidated statement of net assets and the consolidated statement of changes in net assets are the principal financial statements presented under the liquidation basis of accounting. In addition, the account balances of the Hato Rey Partnership (as described below in Notes 3-B and 9), which were 100% consolidated in the financial statements of the Company at December 31, 2010, are not consolidated in net assets under the liquidation basis of accounting.

Under the liquidation basis of accounting, all of the Company’s assets have been stated at their estimated net realizable value and are based on current contracts, estimates and other indications of sales value net of estimated selling costs. All liabilities of the Company, including those estimated costs associated with implementing the Plan of Liquidation, have been stated at their estimated settlement amounts. These amounts are presented in the accompanying statement of net assets. These estimates will be periodically reviewed and adjusted as appropriate. There can be no assurance that these estimated values will be realized. Such amounts should not be taken as an indication of the timing or amount of future distributions or our liquidation. The valuation of assets at their net realizable value and liabilities at their anticipated settlement amount represent estimates, based on present facts and circumstances, of the net realizable value of the assets and the costs associated with carrying out the Plan of Liquidation. The actual values and costs associated with carrying out the Plan of Liquidation are expected to differ from amounts reflected in the accompanying financial statements because of the plan’s inherent uncertainty. These differences may be material. In particular, the estimates of our costs will vary with the length of time necessary to complete the Plan of Liquidation. Accordingly, it is not possible to predict with certainty the timing or aggregate amount which may ultimately be distributed to stockholders and no assurance can be given that the distributions will equal or exceed the estimate presented in the accompanying statement of net assets in liquidation.

B. Principles of Consolidation – The consolidated financial statements include the accounts of Presidential Realty Corporation and its wholly owned subsidiaries. Additionally, prior to the adoption of the liquidation basis of accounting on January 1, 2011, the consolidated financial statements included 100% of the account balances of PDL, Inc. and Associates Limited Co-Partnership (the “Hato Rey Partnership”). PDL, Inc. (a wholly owned subsidiary of Presidential and the general partner of the Hato Rey Partnership) and Presidential own an aggregate 60% general and limited partnership interest in the Hato Rey Partnership (see Note 9). All significant intercompany balances and transactions were eliminated.

C. Net Income (Loss) Per Share – Prior to the adoption of the liquidation basis of accounting, the Company reported basic net income (loss) per share data by dividing net income (loss) by the weighted average number of shares of Class A and Class B common stock outstanding (excluding nonvested shares) during each period. Diluted net income per share was computed by dividing net income by the weighted average shares outstanding, including the dilutive effect, if any, of nonvested shares. The diluted net loss per share calculation for the three months and six months ended June 30, 2010 did not include 10,800 of restricted shares not yet vested as their inclusion would have been antidilutive.

D. Basis of Presentation – The accompanying interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and under the liquidation basis of accounting effective January 1, 2011, in conjunction with the rules and regulations of the Securities and Exchange Commission. The results for such interim periods are not necessarily indicative of the results to be expected for the year. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the results for the respective periods have been reflected. These consolidated financial statements and accompanying notes should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2010.

E. Management Estimates – In preparing the consolidated financial statements in conformity with GAAP and the liquidation basis of accounting, management is required to make estimates and assumptions that affect the reported amounts of assets, including net assets in liquidation, and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of income and expense for the reporting period. Actual results could differ from those estimates.

F. Securities Available for Sale – The Company’s investments are in marketable debt securities consisting of notes and bonds of agencies of the federal government. Prior to the adoption of the liquidation basis of accounting, disposition of such securities would have been appropriate for either liquidity management or in response to changing economic conditions, so they were classified as securities available for sale and reported at fair value in accordance with the Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The valuation of securities available for sale was determined to be Level 1 financial assets within the valuation hierarchy in this topic, and was based on then current market quotes received from financial sources that trade such securities. Unrealized gains and losses were reported as other comprehensive income in the consolidated statement of equity until realized. The Company evaluated these investments for other-than-temporary declines in value, and, if such declines were other than temporary, the Company would have recorded a loss on the investments. Gains and losses on sales of securities are determined using the specific identification method. Effective January 1, 2011, the securities available for sale have been continually marked to fair value, less estimated costs to sell with a corresponding charge to net assets in liquidation.

G. Discontinued Operations – Prior to the adoption of the liquidation basis of accounting, the Company followed the guidance of the Presentation and Property, Plant, and Equipment Topics of the ASC, with respect to long-lived assets classified as held for sale. The ASC required that the results of operations, including impairment, gains and losses related to the properties that were sold or properties that were intended to be sold, be presented as discontinued operations in the statements of operations for all periods presented and the assets and liabilities of properties intended to be sold were to be separately classified on the balance sheet. Properties designated as held for sale were carried at the lower of cost or fair value less costs to sell and were not depreciated.

H. Equity Method – Prior to the adoption of the liquidation basis of accounting, the Company accounted for its investments in joint ventures using the equity method of accounting.

I. Accounting for Uncertainty in Income Taxes – The Company follows the guidance for the recognition of current and deferred income tax accounts, including accrued interest and penalties in accordance with ASC 740-10-25. If the Company’s tax positions in relation to certain transactions were examined and were not ultimately upheld, the Company would be required to pay an income tax assessment and related interest. Alternatively, the Company could elect to pay a deficiency dividend in order to continue to qualify as a REIT and the related interest assessment to the taxing authorities.