[Federal Register Volume 60, Number 211 (Wednesday, November 1, 1995)]
[Rules and Regulations]
[Pages 55423-55440]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27006]
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DEPARTMENT OF AGRICULTURE
Rural Utilities Service
7 CFR Part 1767
RIN 0572-AA23
Accounting Requirements for RUS Electric Borrowers
AGENCY: Rural Utilities Service, USDA.
ACTION: Final rule.
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SUMMARY: This final rule amends the Rural Utilities Service's (RUS)
regulations on accounting policies and procedures for RUS electric
borrowers as set forth in RUS's regulations concerning Accounting
Requirements for RUS Electric Borrowers, Uniform System of Accounts.
This final rule eliminates the requirement that RUS borrowers place the
difference between the amount accrued for postretirement
[[Page 55424]]
benefits during the year and the amount paid on a ``pay-as-you-go''
basis in an external, irrevocable trust to be used solely for
postretirement benefits. RUS borrowers may, however, elect to
voluntarily fund their postretirement benefit obligations. This final
rule sets forth new accounting interpretations that address the
requirements of recently issued pronouncements of the Financial
Accounting Standards Board concerning the accounting for postemployment
benefits and the accounting for certain investments in debt and equity
securities.
In addition, this final rule also sets forth a new accounting
procedure for storm damage costs and the associated funds received from
the Federal Emergency Management Administration (FEMA). It also
clarifies the accounting prescribed for computer software costs by
specifying the accounts to which generalized software costs should be
amortized and to which the costs of maintaining, updating, and
converting files should be expensed.
In addition, this rule will identify the organizational unit within
RUS to which borrower requests for departures from or interpretations
of the RUS Uniform System of Accounts (USoA) should be submitted.
This regulation will facilitate the effective and economical
operation of a business enterprise and ensure that adequate and
reliable financial records be maintained.
EFFECTIVE DATE: This rule is effective December 1, 1995.
FOR FURTHER INFORMATION CONTACT: Ms. Roberta D. Purcell, Chief,
Technical Accounting and Auditing Staff, Borrower Accounting Division,
Rural Utilities Service, AG Box 1523, room 2221, South Building, U.S.
Department of Agriculture, Washington, DC 20250, telephone number (202)
720-5227.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This final rule has been determined to be not significant for the
purposes of Executive Order 12866 and therefore has not been reviewed
by OMB.
Regulatory Flexibility Act Certification
The Administrator, RUS, has determined that the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.) does not apply to this final
rule.
Information Collection and Recordkeeping Requirements
In compliance with the Office of Management and Budget (OMB)
regulations (5 CFR Part 1320) which implement the Paperwork Reduction
Act of 1980 (Pub. L. 96-511) and section 3504 of that Act, the
information collection and recordkeeping requirements contained in this
final rule have been approved by the Office of Management and Budget
under control number 0572-0002. Comments regarding these requirements
may be sent to the United States Department of Agriculture, Clearance
Office, OIRM, room 404-W, Washington, DC 20250 or to the Office of
Management and Budget, Office of Information and Regulatory Affairs,
room 10102, Washington, DC 20503.
National Environmental Policy Act Certification
The Administrator, RUS, has determined that this final rule will
not significantly affect the quality of the human environment as
defined by the National Environmental Policy Act of 1969 (42 U.S.C.
4321 et seq.). Therefore, this action does not require an environmental
impact statement or assessment.
Catalog of Federal Domestic Assistance
The program described by this final rule is listed in the Catalog
of Federal Domestic Assistance Programs under number 10.850--Rural
Electrification Loans and Loan Guarantees. This catalog is available on
a subscription basis from the Superintendent of Documents, the United
States Government Printing Office, Washington, DC 20402.
Executive Order 12372
This final rule is excluded from the scope of Executive Order
12372, Intergovernmental Consultation. A Notice of Final Rule entitled
Department Programs and Activities Excluded from Executive Order 12372
(50 FR 47034) exempts RUS electric loans and loan guarantees from
coverage under this Order.
Executive Order 12778
This final rule has been reviewed under Executive Order 12778,
Civil Justice Reform. This final rule: (1) Will not preempt any state
or local laws, regulations, or policies, unless they present an
irreconcilable conflict with this rule; (2) Will not have any
retroactive effect except as stated herein; and (3) Will not require
administrative proceeding before parties may file suit challenging the
provisions of this rule. This final rule will not have any retroactive
effect unless RUS borrowers have not properly complied with generally
accepted accounting principles. Generally accepted accounting
principles, as issued by the Financial Accounting Standards Board and
its predecessors, are applicable to all financial reporting entities,
including RUS borrowers, regardless of whether RUS publishes its
interpretations. In accordance with generally accepted accounting
principles, the accounting principles set forth in Statement of
Financial Accounting Standards No. 112, Employers' Accounting for
Postemployment Benefits (Statement No. 112), and Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities (Statement No. 115), should have been
adopted by all RUS borrowers for fiscal years beginning after December
15, 1993. The interpretations of these Statements of Financial
Accounting Standards issued by RUS in this final rule instruct
borrowers in the proper accounts to be used within the framework and
requirements of the RUS Uniform System of Accounts. Therefore, this
final rule will have no retroactive effect except for borrowers that
did not properly implement Statements No. 112 and No. 115 when and as
required by generally accepted accounting principles.
Background
In order to facilitate the effective and economical operation of a
business enterprise, adequate and reliable financial records must be
maintained. Accounting records must provide a clear and accurate
picture of current economic conditions from which management can make
informed decisions in charting the company's future. The rate-regulated
environment in which an electric utility operates causes an even
greater need for financial information that is accurate, complete, and
comparable with that of other electric utilities.
RUS, as a federal lender and mortgagee, and in furthering the
objectives of the Rural Electrification Act of 1936 (RE Act) (7 U.S.C.
901 et seq.) has a legitimate programmatic interest and a substantial
financial interest in requiring adequate records to be maintained. In
order to provide RUS with financial information that can be analyzed
and compared with the operations of other borrowers in the RUS program,
all RUS borrowers must maintain financial records that utilize uniform
accounts and uniform accounting policies and procedures. The standard
RUS security instrument, therefore, requires borrowers to maintain
their books, records, and accounts in accordance with methods and
principles of accounting prescribed
[[Page 55425]]
by RUS in the USoA for its electric borrowers.
To ensure that borrowers consistently account for and apply the
provisions of recent pronouncements of the Financial Accounting
Standards Board, the USoA must be revised and updated as changes in
generally accepted accounting principles occur. RUS is, therefore,
adding two new accounting interpretations to Section 1767.41,
Accounting Methods and Procedures Required of All RUS Borrowers, that
address the accounting requirements recently set forth in Statement of
Financial Accounting Standards No. 112, Employers' Accounting for
Postemployment Benefits (Statement No. 112), and Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities (Statement No. 115). Statement No. 112
establishes the standards of financial accounting and reporting for
employers who provide benefits to former or inactive employees after
employment but before retirement while Statement No. 115 establishes
the standards of financial accounting and reporting for investments in
debt securities and for investments in equity securities that have
readily determinable fair values. Copies of Statements of Financial
Accounting Standards may be obtained from the Order Department of the
Financial Accounting Standards Board, 401 Merritt 7, P.O. Box 5116,
Norwalk, Connecticut 06856-5116.
RUS is also amending accounting Interpretation No. 626, Rural
Economic Development Loan and Grant Program, to establish the
accounting policies and procedures for the Rural Economic Development
Grant program recently established by the Rural Business and
Cooperative Development Service.
Interpretation No. 604, Deferred Compensation, sets forth the
specific accounting entries and the balance sheet reporting
requirements for participation in the National Rural Electric
Cooperative Association's (NRECA) Deferred Compensation Program. Under
the terms of this program, a portion of an employee's current salary
may be deferred until such time as the employee retires or terminates
employment. The employer makes a contribution into the deferred
compensation fund in an amount equal to the salary deferred. As such,
the borrower records both an asset and a liability--an asset in the
amount of the contributions to the fund and a liability to that
employee for future payment of the deferred compensation. Current RUS
procedures require the asset and liability to be offset for financial
reporting purposes. Financial Accounting Standards Board Interpretation
No. 39, Offsetting of Amounts Related to Certain Contracts, states that
the offsetting of assets and liabilities in the balance sheet is
improper except where a right of offset exists and a right of offset
exists only when each of two parties owes the other determinable
amounts. Contributions to the deferred compensation fund are payable to
the borrower and, as such, the right of offset does not exist. RUS is,
therefore, amending Interpretation No. 604 to comply with generally
accepted accounting principles by requiring the asset and liability to
be reported separately.
In December 1990, the Financial Accounting Standards Boards issued
Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other than Pensions (Statement
No. 106). Statement No. 106 requires reporting entities to accrue the
expected cost of postretirement benefits during the years in which the
employee provides service to the reporting entity. Prior to the
issuance of Statement No. 106, most reporting entities accounted for
postretirement benefit costs on a ``pay-as-you-go'' basis; that is,
costs were recognized when paid, not when the employee provided service
to the reporting entity in exchange for the benefits.
A postretirement benefit plan is a deferred compensation
arrangement in which an employer promises to exchange future benefits
for an employee's current services. Postretirement benefits include,
but are not limited to, health care, life insurance, tuition
assistance, day care, legal services, and housing subsidies provided
outside of a pension plan.
The RUS USoA parallels the USoA prescribed by the Federal Energy
Regulatory Commission (FERC) for electric utilities and, as such, is
consistent with the standards of financial accounting for the electric
utility industry as a whole. As FERC amends its USoA, RUS reviews the
appropriateness and applicability of each amendment and proposes
revisions, as necessary, to the RUS USoA.
On December 17, 1992, FERC issued its policy statement on
postretirement benefits. Included in its statement was the requirement
that natural gas pipelines and public utilities make cash deposits into
an external, irrevocable trust fund, in amounts that are proportional
and, on an annual basis, equal to the annual test period allowance for
postretirement benefits. RUS reviewed and analyzed these accounting
policies and procedures, including the funding requirement, and
promulgated these requirements in its USoA. The RUS USoA requires RUS
borrowers to fund the liability associated with postretirement benefit
costs by making cash deposits into an irrevocable trust.
Since the issuance of the final rule, RUS borrowers and their
representatives through the NRECA, have questioned the necessity for
RUS borrowers to fund their postretirement benefit obligations. FERC
and a majority of state utility commissions require funding for the
inclusion of postretirement benefit expenses in rates in order to deter
investor-owned utilities from arbitrarily increasing postretirement
benefit costs. Due to the many variables involved in estimating
postretirement benefit costs, the cost incorporated into rates can
easily be manipulated if an investor-owned utility desires to increase
cash flow through increased accruals of postretirement benefit costs.
By requiring utilities to fund an amount equal to the postretirement
benefit costs that were recovered through rates, much of the incentive
for investor-owned utilities to overestimate postretirement benefit
costs is eliminated.
The ratepayers/consumers, and investors/owners of an RUS electric
borrower, because of its cooperative organizational structure, are one
in the same. RUS cooperatives do not, therefore, have this same
incentive to over estimate postretirement benefits costs because
profits do not accrue to a separate, different class of investors/
owners. In fact, RUS electric borrowers have no incentive to
overestimate postretirement benefit costs to increase rates since the
investors/owners are the same as the ratepayers/consumers. RUS has,
therefore, eliminated, through the publication of this final rule, the
funding requirement currently contained in Section 1767.41,
Interpretation No. 627, Postretirement Benefits. RUS borrowers may,
however, elect to voluntarily fund their postretirement benefit
obligations.
Finally, RUS is revising Section 1767.13, Departures from the
Prescribed RUS Uniform System of Accounts, and Section 1767.14,
Interpretations of the RUS Uniform System of Accounts, to specifically
identify the organizational unit within RUS to which requests for
departures from and interpretations of the RUS USoA should be
addressed. This revision should assist borrowers in filing requests and
should expedite the review process within RUS.
[[Page 55426]]
Comments
A proposed rule entitled Accounting Requirements for RUS Electric
Borrowers, published September 2, 1994, at 59 FR 45631, invited
interested parties to submit comments on or before November 1, 1994.
Twenty-seven comments were received which included submissions from
NRECA, RUS electric borrowers, certified public accounting firms, and
statewide organizations. The comments submitted by NRECA were based
upon a joint review of the proposed rule by the Accounting and
Depreciation Committee, a subcommittee of the Generation and
Transmission Managers Association Technical Advisory Committee, and the
Distribution Systems Accounting and Tax Committee. The following
paragraphs address the various topics that were discussed by the
commenters.
Effective Date of Changes
Comment. Three commenters requested that RUS recognize the
significant administrative burden placed on borrowers when changes in
accounting methods are imposed at year end and encouraged RUS to
implement all final rulemakings at the beginning of a year.
Response. RUS is sympathetic to the commenters' concerns and, in no
instance, is it RUS's intent to wait until year end to implement or
prescribe new accounting requirements. Regulations issued by RUS are,
however, reviewed for legal sufficiency by the Office of General
Counsel. RUS regulations are also reviewed by the Office of Management
and Budget and the Federal Register before final publication. This
review process can be lengthy and time consuming. As a result, a
regulation that is scheduled to be published well in advance of a
year's end may not be published as anticipated. While RUS could delay
publication of a final rule until after year's end; in many instances,
the regulation addresses Statements of Financial Accounting Standards
issued by the Financial Accounting Standards Boards that must be
implemented by year end. In these circumstances, RUS believes that the
benefits derived by its borrowers from having ready access to
accounting guidance outweigh the impositions that may be created by a
year-end publication date.
Section 1767.13, Departures From the Prescribed RUS USoA
Comment. Paragraph (d) of Section 1767.13, Departures from the
Prescribed RUS USoA, requires borrowers to obtain RUS approval prior to
implementing the provisions of Statements of Financial Accounting
Standards No. 71, Accounting for the Effects of Certain Types of
Regulation (Statement No. 71); No. 90, Regulated Enterprises--
Accounting for Abandonments and Disallowances of Plant Costs (Statement
No. 90); and No. 92, Regulated Enterprises--Accounting for Phase-in
Plans (Statement No. 92). One commenter suggested that a reference to
Statement of Financial Accounting Standards No. 101, Regulated
Enterprises--Accounting for the Discontinuance of Application of FASB
Statement No. 71 (Statement No. 101), be included as it impacts upon
regulatory enterprises as do the aforementioned statements. The same
commenter argued that RUS cannot establish generally accepted
accounting principles and, therefore, RUS regulations should not
prohibit or require advance approval of the adoption of accounting
standards except as to filings with RUS.
Response. RUS's intent in requiring approval of departures from the
prescribed RUS USoA was to implement the provisions of Article II,
Section 12 of the standard form of RUS security instrument which
requires RUS borrowers to, at all times, keep and safely preserve
proper books, records, and accounts in which full and true entries will
be made of all of the dealings, business and affairs of the Mortgagor,
in accordance with the methods and principles of accounting prescribed
in the USoA. This covenant and requirement is in each and every
standard form of RUS security instrument and has been a requirement for
numerous years. Pursuant to Section 4 of the RE Act, this covenant is
one of many terms and conditions prescribed by the Administrator of RUS
relating to the expenditure of the moneys loaned and the security
therefore with respect to loans and loan guarantees.
This rule is not an attempt at establishing generally accepted
accounting principles nor is it intended to prohibit borrowers from
adhering to the standards issued by the Financial Accounting Standards
Board. It is intended to insure that similar transactions are accounted
for in a consistent manner in accordance with the USoA and to allow RUS
to properly evaluate a borrower's operating performance. Consistency in
the application of accounting methodologies is critical if RUS is to
properly evaluate a borrower's financial condition, programmatic
performance, and ultimately its creditworthiness.
Statements Nos. 71, 90, and 92 allow rate-regulated enterprises to
defer current period expenses and revenues beyond that allowed for
nonregulated enterprises provided that certain criteria are met.
Included among the criteria is the requirement that an enterprise's
rates for regulated services or products provided to its customer are
established by or are subject to approval by an independent, third-
party regulator or by its own governing board empowered by statute or
contract to establish rates that bind customers. Because the vast
majority of RUS borrowers are not subject to rate regulation by state
public utility commissions, their boards of directors, under the
provisions of Statement No. 71, may defer current period income and
expense items without the intervention of an independent third-party.
As such, a borrower could defer current period expenses and, as a
result, not meet the financial ratio requirements set forth in its
mortgage. RUS implemented this requirement for purposes of assuring
that loans and loan guarantees are repaid. Therefore, RUS does not
believe that this requirement should be revised at this time.
Statement No. 101, however, is a more conservative standard in that
it establishes the reporting requirements for enterprises that no
longer meet the criteria for application of Statement No. 71. It does
not permit the deferral of income or expense items that might
arbitrarily inflate a borrower's financial ratios. Therefore, RUS
believes that there is no benefit to the Federal government of imposing
a requirement that borrowers obtain RUS approval prior to implementing
the provisions of Statement No. 101.
Comment. The revisions proposed to Section 1767.13 were intended to
specify to whom, in RUS, requests for departures from the USoA and
approvals of deferrals under Statements Nos. 71, 90, 92 were to be
addressed. The proposed rule identified the Director of the Borrower
Accounting Division (BAD) as the contact for such requests. Two
commenters expressed concern that the area offices should be consulted
as part of the approval process.
Response. All requests for approvals of departures from the USoA
and implementations of deferral plans are processed by the Borrower
Accounting Division. RUS can provide a more timely response to a
borrower's request if it is submitted directly to the division that has
been delegated the authority to review such requests. A request for
approval of a departure from the USoA is a technical interpretation
and, as
[[Page 55427]]
such, is reviewed, processed, and approved by the Director, BAD. A
request for approval of a deferral plan, however, involves not only the
accounting aspect of the deferral, but the eventual impact upon RUS's
loan security, as well. Such requests are, therefore, processed and
reviewed by BAD for technical accuracy and approved by the area office.
RUS believes that this process is the most effective and efficient use
of human resources and provides the most timely response to our
borrowers. For these reasons, no revisions were made in the final rule.
Comment. Section 1767.13 requires borrowers to obtain approval
before implementing an expense or revenue deferral plan. Two commenters
recommended that more latitude be given to borrowers who utilize
deferral plans when loan security is not adversely affected by
deferrals of immaterial dollar amounts. Specifically, the commenters
recommended that revenue and expense deferrals that, when combined with
all other deferrals, are less than a specified percentage of net
utility plant or a specified percentage of equity be exempted from RUS
approval.
Response. RUS agrees, in part, that immaterial deferrals that do
not impact upon loan security could be exempt from RUS approval.
However, there is a question as to what constitutes an immaterial
deferral. RUS will consider, in the next proposed revision of Part
1767, establishing materiality thresholds for approvals of both
deferral plans and departures from the USoA.
Comment. Two commenters recommended that RUS establish a time frame
in which decisions on requests for approvals of deferral plans,
departures from and interpretations of the USoA will be made by RUS.
Response. RUS recognizes the importance of obtaining a timely
response to approval requests. However, RUS believes that the
establishment of specific time frames for such approvals would be
impractical under the circumstances. Approvals are often delayed
because a borrower has submitted incomplete or insufficient
information. The time required for additional correspondence and the
uncertainty of when the additional information will be submitted is out
of RUS' control. As previously discussed in the comment section, RUS
has undertaken steps to ensure that requests are processed and reviewed
in the most efficient manner practicable. For these reasons, RUS has
not instituted approval time frames in this final rule.
Section 1767.14, Interpretation of the RUS Uniform System of Accounts
Comment. Three commenters requested that RUS clarify whether
requests for interpretations of the USoA must be posed in writing or if
oral requests were acceptable.
Response. It is common practice for RUS to address borrower,
certified public accountant (CPA), and industry questions orally and,
in effect, provide interpretations of the USoA. In order to be able to
rely on an interpretation and in order for RUS to maintain uniformity
throughout the program, interpretations should be addressed, in
writing, and Section 1767.14 has been revised accordingly.
Section 1767.41, Accounting Methods and Procedures Required of All RUS
Borrowers
Interpretation No. 136, Storm Damage
Comment. Two commenters supported the accounting for storm damage
as prescribed in Accounting Interpretation No. 136; however, they
recommended that the interpretation be expanded to include the
accounting for the administrative fee paid by FEMA.
Response. RUS agrees with the recommendation and has revised the
final rule accordingly.
Interpretation No. 401, Computer Software
Comment. Three commenters questioned whether the cost of
applications software should be deferred in Account 186, Miscellaneous
Deferred Debits. One commenter specifically recommended capitalizing
the cost in Account 301, Organizations. The other commenters argued
that there is essentially no difference between generalized software
and applications software and that it is more appropriate to capitalize
both into a plant account and record depreciation.
Response. In accordance with a Technical Practice Aid issued by the
American Institute of Certified Public Accountants, the cost of
computer software purchased for internal use in activities other than
research and development should be capitalized and depreciated over its
estimated useful service life in accordance with Accounting Research
Bulletin No. 43, Chapter 9, Depreciation, Paragraph 5. RUS, therefore,
agrees with the commenters that recommended that applications software
be capitalized and depreciated in a manner similar to that of
generalized software. Interpretation No. 401 has been revised
accordingly.
Comment. Interpretation No. 401 requires that all costs incurred in
the revision of software or in the maintenance, updating, and
conversion of files, and all costs of computer software having a useful
service life of less than 1 year be charged to expense in Account 921,
Office Supplies and Expenses, in the period incurred. One commenter
argued that Account 921 is not always the most appropriate account in
which to classify such costs. Rather, the costs should be
functionalized to the various construction, retirement, operations, and
maintenance accounts based upon the activity being supported.
Response. The note to Account 921 specifically states that office
expenses that are clearly applicable to any category of operating
expenses other than the administrative and general category should be
included in the appropriate account in such category. Account 921 does
not, however, permit capitalization of any portion of these costs. In
this final rule, RUS has clarified Interpretation No. 401 to allow such
costs to be recorded in the appropriate functional operating expense
accounts; however, capitalization to either construction or retirement
activities is not permitted.
Interpretation No. 604, Deferred Compensation
Comment. Interpretation No. 604 sets forth the accounting
requirements associated with the NRECA Deferred Compensation Program.
It requires that the accumulated change in the fund value resulting
from investment gains or losses to be recorded as an increase/decrease
in the asset and liability accounts. One commenter took issue with this
accounting methodology and recommended that increases in the fund be
accounted for as an increase in the asset with an offsetting credit to
interest income. Because the cooperative has an obligation to pass the
investment earnings along to the employee, the commenter recommended
that the liability account should be increased with an offsetting
charge to interest expense.
Response. In response to this comment, RUS contacted NRECA to
obtain a better understanding of the internal operations of the
Deferred Compensation Program. When an employer offers a deferred
compensation arrangement to an employee, the amount of the annual
contribution (deferred compensation), currently an amount up to $7,500,
is determined. The cooperative then invests these funds with NRECA in
the cooperative's name. The funds are invested in the Homestead Fund
which currently consists of four funds--the
[[Page 55428]]
Short-term Bond Fund, the Value Fund, the Short-term Government
Securities Fund, and the Daily Income Fund. Detailed investment
information is maintained for each cooperative by participant. While
the employee selects the funding program and bears its risk through the
benefits ultimately derived, the cooperative retains legal ownership of
the investments.
The accounting currently set forth in Interpretation No. 604
assumed that the cooperative bore the investment risk and has,
therefore, been revised accordingly.
Interpretation No. 626, Rural Economic Development Loan and Grant
Program
Comment. Three commenters objected to recording the funds received
from a Rural Economic Development Grant as income. Rather, the
commenters believed that the economic development grant funds are more
in the nature of a capital item provided by Congress to promote
particular purposes and should therefore, be recorded in Account 208,
Donated Capital. The commenters argue that classifying these grant
funds as income distorts a RUS borrower's financial statistics as well
as adversely impacts upon the 85% member income test a cooperative must
meet in order to remain income tax exempt.
Response. The establishment of a revolving loan program by the
grantee of a Federal grant creates special concerns from an accounting
perspective. The customary Federal grant is made for a specific project
or purpose. The income to the grantee is offset by the costs incurred
in the project, thereby eliminating any net income effect. When a
revolving loan program is established by the grantee, the grantee
incurs no immediate expense with which to offset the grant funds. While
there may be the incidental costs of administering the loan program, no
additional costs are incurred unless a loan is defaulted upon. In fact,
under the Rural Business and Cooperative Development Service's grant
program, after the initial grant funds have been loaned and repaid, the
borrower may charge a reasonable rate of interest on its revolving
loans. The grant program may, therefore, actually become income
producing.
Additionally, because 7 CFR Part 1703, Subpart B, Rural Economic
Development Loan and Grant Program, is somewhat ambiguous as to the
final disposition of the grant funds upon termination of the revolving
loan program, further accounting concerns are raised.
The accounting for a rural economic development grant is therefore,
dependent upon the grant agreement itself. If the agreement requires
the grantee to repay the grant upon termination of the revolving loan
program, the funds must be recorded as a liability. If the grant
agreement stipulates that there is no obligation for repayment, the
funds should be recorded as a permanent infusion of capital. If,
however, the agreement is silent as to the final disposition of the
grant funds, the funds must be recorded as income. The final rule has
been revised accordingly.
Interpretation No. 627, Postretirement Benefits
Comment. Of the 27 comments received, only two commenters believed
that RUS should continue to require borrowers to fund their
postretirement benefit obligations. Those opposed to the funding
requirement argued that the funding of postretirement benefits is an
issue of importance to utility management, rate regulators, and
employees; however, it should be of little importance to a utility's
lenders. They argue that cash set aside in an external trust for the
sole purpose of financing postretirement benefits could adversely
affect loan security as cash that would otherwise be available to meet
debt service would be available only for postretirement benefits. Those
in favor of funding argued that unfunded benefits present a risk of
future loan defaults. The beneficiaries of the unfunded benefits will
be co-creditors along with the Federal government and the ratepayers/
owners of the cooperatives will place their own self interest ahead of
the fiscal integrity of the cooperative, thereby failing to raise rates
when necessary to meet their Federal debt service obligations.
Response. While the risk exists that the ratepayers/owners of a
certain few borrowers may benefit at the detriment of the Federal
government, the vast majority of RUS borrowers are financially sound,
fiscally responsible entities. The funding requirement, as currently
set forth, significantly limits a borrower's investment options. It
also limits flexibility in managing a borrower's operations and may put
a borrower at a competitive disadvantage. While RUS strongly encourage
borrowers to fund their postretirement benefit obligations for the
reasons proffered above, RUS considers its current funding requirement
to be unduly burdensome. Similarly, because funding in an irrevocable
trust may, in fact, impair repayment of loans, RUS believes that it
would not be undertaking a substantial risk if it were to eliminate the
funding requirement. For these reasons, no revision was made to the
final rule.
Comment. Interpretation No. 627 requires RUS borrowers to have
rates in place sufficient to recover their current period
postretirement benefit expense and any amortization of the transition
obligation at the time of adoption of Statement No. 106. Evidence of
such rate recovery in the form of a board resolution or commission
order must be submitted to RUS. One commenter argued that the
submission of a board resolution is unnecessary. Special attention is
not required by the board of directors for other types of expenses and
should not, therefore, be mandated for postretirement benefits.
Response. Prior to the issuance of Statement No. 106, many
utilities argued that rate-regulated enterprises should be allowed to
continue to account for postretirement benefits on a ``pay-as-you-go''
basis provided that postretirement benefit costs were included in rates
on a similar basis. RUS, in Interpretation No. 627, specifically
requires its borrowers to adopt the accrual accounting provisions of
Statement No. 106 and prohibits its borrowers from remaining on the
``pay-as-you-go'' basis. Inherent in this concept is the recovery,
through rates, of the annual accrual for postretirement benefit costs.
While RUS agrees that the board is not asked to specifically address
other current period operating expenses unless they have been deferred
under the provisions of Statements Nos. 71, 90, and 92, postretirement
benefit costs, the controversy over accrual versus ``pay-as-you-go''
accounting, presents a more contentious issue. The requirement for
submission of the board resolution or commission order evidences
adoption of the accrual accounting provisions as required by Statement
No, 106 and Interpretation No. 627 and for this reason, no change has
been made to the final rule.
Comment. Interpretation No. 627 acknowledges that the transition
obligation resulting from the adoption of Statement No. 106 may be
deferred in accordance with the provisions of Statement No. 71 provided
RUS approval is obtained. One commenter indicated that the Emerging
Issues Task Force (EITF) in EITF No. 92-12, Accounting for OPEB Costs
by Rate-Regulated Enterprises, limits the combined deferral-recovery
period authorized by the regulator to approximately twenty years from
the date of adoption of Statement No. 106. The commenter recommended
that RUS refer to EITF 92-12 in its regulation and adopt its provision
accordingly.
[[Page 55429]]
Response. Interpretations of generally accepted accounting
principles are perpetually issued by the EITF and the AICPA. RUS has
not, therefore, attempted to address each interpretation in its
rulemakings unless RUS borrowers are specifically affected. Because all
deferrals require RUS approval, RUS is able to monitor compliance with
EITF 92-12 at the approval stage and it is not RUS's intention to
approve a deferral that will conflict with the interpretation. For this
reason, no revision was made to the final rule.
Comment. Interpretation No. 627 provides journal entries for the
various events associated with postretirement benefits. Included among
the events journalized is a borrower's voluntary funding of its
postretirement benefit obligation. The journal entry prescribes a debit
to Account 228.3X, Accumulated Provision for Pensions and Benefits--
Funded, and a credit to Account 131.1, Cash--General. One commenter
agreed with the journal entry provided that the funds were placed in an
external, irrevocable trust. The commenter further proffered that if
the borrower is merely segregating funds to be used to pay obligations
in the future, reducing the postretirement benefit obligation is
inappropriate.
Response. RUS agrees with the commenter and has revised the final
rule to reflect two journal entries--one reflecting funding into an
external, irrevocable trust and a second reflecting a segregation of
funds.
Interpretation No. 629, Investments in Debt and Equity Securities
Comment. Several commenters specifically agreed with the accounting
set forth in Interpretation No. 629; however, three commenters
suggested that RUS address unrealized gains and losses on available-
for-sale securities held as part of a decommissioning fund.
Specifically, the commenters recommended that such gains and losses
should increase or decrease the reported value of the fund.
Response. The accounting for nuclear decommissioning costs and
their funding has long been an issue of debate and is currently being
reviewed by the Federal Energy Regulatory Commission and the Financial
Accounting Standards Board. It was RUS's intention not to address this
subject matter in any forum until such time as a consensus was drawn.
However, based upon the public belief that addressing available-for-
sale securities held in a nuclear decommissioning fund will clarify
this interpretation, RUS has revised Interpretation No. 629 to require
unrealized holding gains and losses to increase or decrease, as
appropriate, the reported value of the decommissioning fund.
List of Subjects in 7 CFR Part 1767
Electric power, Loan programs-energy, Rural areas, Uniform System
of Accounts.
For the reasons set out in the preamble, RUS hereby amends 7 CFR
chapter XVII as follows:
PART 1767--ACCOUNTING REQUIREMENTS FOR RUS ELECTRIC BORROWERS
1. The authority citation for part 1767 continues to read as
follows:
Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; Pub. L.
103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).
2. Section 1767.13 is amended by revising paragraphs (a), (c)
introductory text, and (d) to read as follows:
Sec. 1767.13 Departures from the prescribed RUS Uniform System of
Accounts.
(a) No departures are to be made to the prescribed RUS USoA without
the prior written approval of RUS. Requests for departures from the RUS
USoA shall be addressed, in writing, to the Director, Borrower
Accounting Division (BAD).
* * * * *
(c) If any state regulatory authority with jurisdiction over an RUS
borrower prescribes accounting methods or principles for the borrower
that are inconsistent with the provisions of this part, the borrower
must immediately notify the Director, BAD, and provide such documents,
information, and reports as RUS may request to evaluate the impact that
such accounting methods or principles may have on the interests of RUS.
* * * * *
(d) RUS borrowers will not implement the provisions of Statement of
Financial Accounting Standards (SFAS) No. 71, Accounting for the
Effects of Certain Types of Regulation, SFAS No. 90, Regulated
Enterprises--Accounting for Abandonments and Disallowances of Plant
Costs, SFAS No. 92, Regulated Enterprises--Accounting for Phase-in
Plans, without the prior written approval of RUS. Requests for approval
shall be addressed, in writing, to the Director, BAD.
* * * * *
3. Section 1767.14 is revised to read as follows:
Sec. 1767.14 Interpretations of the RUS Uniform System of Accounts.
To maintain uniformity in accounting, borrowers must submit
questions concerning interpretations of the RUS USoA, in writing, to
the Director, BAD, for consideration and decision.
(Approved by the Office of Management and Budget under control
number 0572-0002)
4-6. In Sec. 1767.18, make the following changes:
a. In the table of contents listing under ``Other Property and
Investments'', entries for Accounts 123.3, 123.4, 124.1, 124.2 are
added in numerical order.
b. In the table of contents listing under ``Current and Accrued
Assets'', the entry for Account 131.12 is put in numerical order and
entries for Accounts 131.13 and 131.14 are added in numerical order.
c. Paragraph C. of Account 123 is revised, and Account 123.3,
Investment in Associated Organizations-Federal Economic Development
Loans, and Account 123.4, Investment in Associated Organizations-Non-
Federal Economic Development Loans, are added in numerical order.
The additions and revision read as follows:
1767.18 Assets and other debits.
* * * * *
Assets and Other Debits
* * * * *
Other Property and Investments
* * * * *
123.3 Investment in Associated Organizations--Federal Economic
Development Loans
123.4 Investment in Associated Organizations--Non-Federal Economic
Development Loans
* * * * *
124.1 Other Investments--Federal Economic Development Loans
124.2 Other Investments--Non-Federal Economic Development Loans
* * * * *
Current and Accrued Assets
* * * * *
131.13 Cash--General--Economic Development Grant Funds
131.14 Cash--General--Economic Development Non-Federal Revolving
Funds
* * * * *
123 Investment in Associated Companies
* * * * *
C. Account 123 shall be subaccounted as follows:
123.1 Patronage Capital from Associated Cooperatives
123.3 Investment in Associated Organizations--Federal Economic
Development Loans
123.4 Investment in Associated Organizations--Non-Federal Economic
Development Loans
[[Page 55430]]
123.11 Investment in Subsidiary Companies
123.21 Subscriptions to Capital Term Certificates--Supplemental
Financing
123.22 Investment in Capital Term Certificates--Supplemental
Financing
123.23 Other Investments in Associated Organizations
* * * * *
123.3 Investment in Associated Organizations--Federal Economic
Development Loans
This account shall include investment advances of Federal funds
received from a Rural Economic Development Grant to associated
organizations for authorized rural economic development projects.
123.4 Investment in Associated Organizations--Non-Federal Economic
Development Loans
This account shall include investment advances of non-Federal funds
from the Rural Economic Development Grant revolving fund to associated
organizations for authorized rural economic development projects.
* * * * *
7. In 1767.18, paragraph C of Account 124 is added preceeding Note
A, and Account 124.1, Other Investments--Federal Economic Development
Loans, and Account 124.2, Other Investments--Non-Federal Economic
Development, are added to read as follows:
* * * * *
124 Other Investments
* * * * *
C. Account 124 shall be subaccounted as follows:
124.1 Other Investments--Federal Economic Development Loans
124.2 Other Investments--Non-Federal Economic Development Loans
* * * * *
124.1 Other Investments--Federal Economic Development Loans
This account shall include investment advances of Federal funds
received from a Rural Economic Development Grant to nonassociated
organizations for authorized rural economic development projects.
124.2 Other Investments--Non-Federal Economic Development Loans
This account shall include investment advances of non-Federal funds
from the Rural Economic Development Grant revolving fund to
nonassociated organizations for authorized rural economic development
projects.
* * * * *
8. In Sec. 1767.18, paragraph B of Account 131 is revised, Account
131.12 is put in numerical order, and Account 131.13, Cash--General--
Economic Development Grant Funds, and Account 131.14, Cash--General--
Economic Development Non-Federal Revolving Funds, are added in
numerical order to read as follows:
* * * * *
131 Cash
* * * * *
B. Account 131 shall be subaccounted as follows:
131.1 Cash--General
131.2 Cash--Construction Fund--Trustee
131.3 Cash--Installation Loan and Collection Fund
131.4 Transfer of Cash
131.12 Cash--General--Economic Development Loan Funds
131.13 Cash--General--Economic Development Grant Funds
131.14 Cash--General--Economic Development Non-Federal Revolving
Funds
* * * * *
131.13 Cash--General--Economic Development Grant Funds
This account shall include cash received from the Rural Utilities
Service for Rural Economic Development Grants. Economic development
grant funds shall be charged to this account and credited to Account
224.18, Other Long-Term Debt--Grant Funds; Account 208, Donated
Capital; or Account 421, Miscellaneous Nonoperating Income, as
appropriate. This account shall be credited and either Account 123.3,
Investment in Associated Organizations--Federal Economic Development
Loans, or Account 124.1, Other Investments--Federal Economic
Development Loans, shall be debited, as appropriate, with the amount of
an economic development revolving fund loan.
131.14 Cash--General--Economic Development Non-Federal Revolving Funds
This account shall include all non-Federal funds comprising the
economic development revolving fund. It shall include all funds
supplied by the borrower as well as all cash received from the
repayment of loans made from the economic development revolving fund.
This account shall be credited and either Account 123.4, Investment in
Associated Organizations--Non-Federal Economic Development Loans, or
Account 124.2, Other Investments--Non-Federal Economic Development
Loans, shall be debited, as appropriate, with the amount of an economic
development revolving fund loan.
* * * * *
9. In Sec. 1767.19, in the table of contents listing under
``Margins and Equities'', an entry for Account 215.1 is added in
numerical order and Account 215.1 is added to read as follows:
Sec. 1767.19 Liabilities and other credits.
* * * * *
Liabilities and Other Credits
Margins and Equities
* * * * *
215.1 Unrealized Gains and Losses--Debt and Equity Securities
* * * * *
215.1 Unrealized Gains and Losses--Debt and Equity Securities
This account shall include the unrealized holding gains and losses
for available-for-sale securities.
* * * * *
10--15. In Sec. 1767.41, make the following changes:
a. In the Numerical Index, the entries Interpretation No. 136,
Storm Damage; Interpretation No. 628, Postemployment Benefits; and
Interpretation No. 629, Investments in Debt and Equity Securities, are
added in numerical order.
b. In the Subject Matter Index listing under ``D'', an entry for
``Debt Securities--Investments in,'' is added in alphabetical order.
c. In the Subject Matter Index listing under ``E'', an entry for
``Equity Securities--Investments in,'' is added in alphabetical order.
d. In the Subject Matter Index listing under ``I'', an entry for
``Investments in Debt and Equity Securities,'' is added in alphabetical
order.
e. In the Subject Matter Index listing under ``P'', an entry for
``Postemployment Benefits,'' is added in alphabetical order.
f. In the Subject Matter Index listing under ``S'', an entry for
``Securities--Investments in Debt and Equity,'' and an entry for
``Storm Damage,'' are added in alphabetical order.
g. The entry Interpretation No. 136 is added. The additions read as
follows:
Sec. 1767.41 Accounting methods and procedures required of all RUS
borrowers.
* * * * *
Numerical Index
------------------------------------------------------------------------
Number Title
------------------------------------------------------------------------
* * * * *
136........................... Storm Damage.
* * * * *
628........................... Postemployment Benefits.
629........................... Investments in Debt and Equity
Securities.
------------------------------------------------------------------------
[[Page 55431]]
Subject Matter Index
------------------------------------------------------------------------
Number
------------------------------------------------------------------------
* * * * *
D
* * * * *
Debt Securities--Investments in........... 629
* * * * *
E
* * * * *
Equity Securities--Investments in......... 629
* * * * *
I
* * * * *
Investments in Debt and Equity Securities. 629
* * * * *
P
* * * * *
Postemployment Benefits................... 628
* * * * *
S
* * * * *
Securities--Investments in Debt and Equity 136
* * * * *
Storm Damage.............................. 136
* * * * *
------------------------------------------------------------------------
136 Storm Damage
As a result of recent hurricane, flood, and ice storm damage, the
Rural Utilities Service (RUS) has received several inquiries concerning
the proper accounting for storm damage costs and the associated funds
received from the Federal Emergency Management Administration (FEMA).
Storm damage costs should be accounted for under the work order
procedure. Units of property destroyed or otherwise removed from
service must be reflected on retirement work orders and units of
property installed must be shown on construction work orders. To ensure
that the accounting for construction and retirement costs is as
accurate as possible, an effort should be made to accurately accumulate
material, labor, and overhead costs. Even when extreme care has been
exercised, however, it may still be necessary to use estimates to
develop the appropriate cost figures.
When a storm occurs, a utility typically incurs a large retirement
loss, all or a part of which should be charged to the accumulated
provision for depreciation. Storm damage costs over and above
construction and retirement costs represent maintenance expense.
Maintenance costs include the costs of resagging lines, straightening
poles, and replacing minor items of property. When extensive damage has
occurred, the need to restore the property to an operating condition
without delay usually results in excessive costs being incurred.
Standard property unit costs may be used as a guide in determining the
amount to be capitalized. It should be noted, however, that when
standard property unit costs are used, all excess costs are charged to
maintenance expense.
Because of the storm's destruction, property is retired prematurely
and as a result, extraordinary retirement losses occur. When such
extraordinary losses occur, they should be recorded in the year in
which the losses are incurred. If the recording of such losses will
materially distort the income statement, such losses may be charged to
Account 435, Extraordinary Deductions. These costs may be deferred and
amortized to future periods only if the provisions of Statement of
Financial Accounting Standards No. 71, Accounting for the Effects of
Certain Types of Regulation (Statement No. 71), are applied. Under the
provisions of Statement No. 71, a utility may defer certain costs,
provided such costs are included in the utility's rate base and
recovered through future rates. If an RUS borrower elects to apply the
provisions of Statement No. 71, RUS approval is required. To obtain RUS
approval, a borrower must submit:
a. A detailed description of the plan including the nature of the
expense item, the amount of the deferral, the specific time period for
rate recovery, and justifying support for the time period selected;
b. The accounting journal entries being used by the cooperative to
record the expense deferral and amortization of the deferred costs;
c. A copy of the state Commission order authorizing recovery of the
deferred costs through future rates, or in the absence of commission
jurisdiction, a resolution from the cooperative's board of directors
authorizing such recovery; and
d. A statement from the borrower's certified public accountant
(CPA) or CPA firm indicating that the deferral and amortization of
these costs is in accordance with generally accepted accounting
principles.
To assist in the restoration of the damaged facilities, the Federal
government often provides assistance through FEMA. Under current FEMA
procedures, FEMA provides funds for the restoration of facilities based
upon the cost estimates submitted by the entity requesting assistance.
If the FEMA grant is for less than 100 percent of the cost estimates,
FEMA does not specify which costs are to be reimbursed. When the funds
are received, therefore, they should be accounted for by crediting
construction, retirement, maintenance expense, and administrative
expense in direct proportion to the total costs incurred. For example,
if total storm damage costs are $1,000,000 with $450,000 incurred for
maintenance, $300,000 for retirement, $200,000 for construction, and
$50,000 for administrative costs, the FEMA reimbursement should be
accounted for by applying 45 percent of the funds received as a credit
to maintenance expense, 30 percent as a credit to retirement costs, 20
percent as a credit to construction, and 5 percent as a credit to
administrative and general costs.
Accounting Journal Entries
Dr. 108.8X, Retirement Work in Progress--
Storm Damage........................... $1,015.17
Cr. 107.4, Construction Work in
Progress--Storm Damage............. .............. $1,015.17
To transfer the removal costs recorded in Column 11 of Retirement
Work Order #4401X to Account 108.8X.
Dr. 107.4, Construction Work in
Progress--Storm Damage................. $4,141.55
Cr. 108.8X, Retirement Work in
Progress--Storm Damage............. .............. $4,141.55
To remove material salvaged in the ____________________ rebuild
from Account 107.4. The original entry debited Account 154, Plant
Materials and Operating Supplies, and credited Account 107.4. (See
Column 12 of Retirement Work Order #4401X.)
Dr. 108.8X, Retirement Work in Progress--
Storm Damage........................... $312,230.41
[[Page 55432]]
Cr. 364, Poles Towers and Fixtures.. .............. $133,377.55
Cr. 365, Overhead Conductors and
Devices............................ .............. 59,683.08
Cr. 368, Lines Transformers......... .............. 19,704.60
Cr. 369, Services................... .............. 97,651.23
Cr. 373, Street Lighting and Signal
Systems............................ .............. 1,813.95
To remove the original cost of property destroyed and retired from
the classified plant accounts. This retirement is recorded, in detail,
on Retirement Work Order #4401X. It is understood that this retirement
covers all distribution property retired or destroyed in the
____________________ area exclusive of substations and special
equipment items (meters, meter sockets, current and potential
transformers, transformers, voltage regulators, oil circuit reclosers
(OCR), and sectionalizers).
Dr. 108.6, Accumulated Provision for
Depreciation of Distribution Plant..... $309,104.03
Cr. 108.8X, Retirement Work in
Progress--Storm Damage............. .............. $309,104.03
To record the net loss due to the retirement of distribution lines
in the ____________________ area. (See Retirement Work Order #4401X.)
Dr. 364, Poles, Towers and Fixtures..... $99,075.40
Dr. 365, Overhead Conductors and Devices 104,142.22
Dr. 368, Line Transformers.............. 25,036.07
Dr. 369, Services....................... 28,865.08
Dr. 373, Street Lighting and Signal
Systems................................ 2,101.60
Cr. 107.4, Construction Work in
Progress--Storm Damage............. .............. $259,220.37
To record, in the proper classified plant accounts, Construction
Work Order #4401 covering the ____________________ rebuild.
This entry includes:
Material Issued..................... $150,336.49
Less: Materials Returned............ 15,631.39
-------------------------------
Net Material Used................... 134,705.10
Labor and overhead estimated by
using standard record unit costs... 124,515.27
-------------------------------
Total............................. 259,220.37
===============================
Dr. 108.8X, Retirement Work in Progress--
Storm Damage........................... 2,384.00
Cr. 107.4, Construction Work in
Progress--Storm Damage............. .............. $2,384.00
To transfer the removal costs associated with the retirement of old
transmission lines ($1,966) and substations ($418) to Account 107.4.
This cost is shown in Column 11 of Retirement Work Order #4400X).
Dr. 107.4, Construction Work in
Progress--Storm Damage................. $1,939.74
Cr. 108.8X, Retirement Work in
Progress--Storm Damage............. .............. $1,939.74
To remove material salvaged from transmission lines ($1,545.74) and
substations ($394.00) from Account 107.4. The original entry debited
Account 154 and credited Account 107.4. (See Column 12 of Retirement
Work Order #4400X.)
Dr. 108.8X, Retirement Work in Progress--
Storm Damage........................... $162,172.06
Cr. 355, Poles and Fixtures......... .............. $47,738.45
Cr. 356, Overhead Conductors &
Devices............................ .............. 80,304.11
Cr. 362, Station Equipment.......... .............. 34,129.50
To remove the original cost of transmission lines and substations
destroyed and retired from the classified plant accounts. (See
Retirement Work Order #4400X.) (New substations were built and
separately accounted for on Work Order #4406.)
Dr. 108.5, Accumulated Provision for
Depreciation of Transmission Plant..... $128,462.82
Dr. 108.6, Accumulated Provision for
Depreciation of Distribution Plant..... 34,153.50
Cr. 108.8X, Retirement Work in
Progress--Storm Damage............. .............. $162,616.32
To record the net loss due to the retirement of transmission lines
($128,462.82) and substations ($34,153.50). (See Retirement Work Order
#4400X):
------------------------------------------------------------------------
Transmission
Substations plant
------------------------------------------------------------------------
Original Cost........................... $34,129.50 $128,042.56
Add: Cost of Removal.................... 418.00 1,966.00
-------------------------------
34,547.50 130,008.56
Less: Material Salvaged................. 394.00 1,545.74
-------------------------------
Total............................. 34,153.50 128,462.82
===============================
------------------------------------------------------------------------
Dr. 355, Poles and Fixtures............. $161,784.05
Dr. 356, Overhead Conductors and Devices 124,704.77
Cr. 107.4, Construction Work in
Progress--Storm Damage............. .............. $286,488.82
To record, in the proper classified plant accounts, the costs of a
69 kV transmission line (____________________) as detailed in Work
Order #4400. This work order includes construction costs as follows:
[[Page 55433]]
Material Used (Net)..................... $171,665.62
Labor and overhead estimated by
using standard record unit costs... 114,823.20
-------------------------------
Total............................. 286,488.82
===============================
Dr. 107.4, Construction Work in
Progress--Storm Damage................. $329.40
Cr. 108.8X, Retirement Work in
Progress--Storm Damage............. .............. $329.40
To correct the journal entry for cash received from the sale of
scrapped meters and transformers. The original entry credited Account
107.4 at the time of receipt.
Transformers........................ $318.00
Meters.............................. 11.40
-------------------------------
Net Materials Used.................. 329.40
===============================
Dr. 108.8X, Retirement Work in Progress--
Storm Damage........................... .............. $137,671.22
Cr. 365, Overhead Conductors and
Devices............................ .............. $4,557.00
Cr. 368, Line Transformers.......... .............. 112,815.22
Cr. 370, Meters..................... .............. 20,299.00
To remove the cost of meters, transformers, and OCRs lost or
destroyed from the primary plant accounts. (See Retirement Work Order
#4402X.)
737 Transformers.................... $112,815.22
31 OCRs............................. 4,557.00
1,532 Meters........................ 20,299.00
-------------------------------
Total............................. 137,671.22
===============================
Dr. 108.6, Accumulated Provision for
Depreciation of Distribution Plant..... $137,341.82
Cr. 108.8X, Retirement Work in
Progress........................... .............. $137,341.82
To record the net loss due to the retirement of meters,
transformers, and OCRs. (See Retirement Work Order #4402X.)
Original Cost....................... $137,671.22
Salvaged Realized................... 329.40
-------------------------------
Total............................. 137,341.82
===============================
Dr. 186, Miscellaneous Deferred Debits.. $1,319.85
Cr. 107.4, Construction Work in
Progress--Storm Damage............. .............. $1,319.85
To record the engineering costs associated with future construction
work in the ____________________ area.
Dr. 593, Maintenance of Overhead Lines.. $607.24
Dr. 595, Maintenance of Line
Transformers........................... 19,365.86
Dr. 597, Maintenance of Meters.......... 6,595.56
Cr. 107.4, Construction Work in
Progress--Storm Damage............. .............. $26,568.66
To charge the costs of repairing damaged meters, transformers,
voltage regulators, and OCRs to the appropriate expense accounts.
Repair costs were originally charged to Account 107.4.
----------------------------------------------------------------------------------------------------------------
593 595 597
----------------------------------------------------------------------------------------------------------------
Meters.......................................................... .............. .............. $6,595.56
Transformers.................................................... .............. $18,869.95 ..............
Voltage Regulators.............................................. .............. 495.91 ..............
Oil Circuit Reclosers........................................... $607.24 .............. ..............
-----------------------------------------------
Total..................................................... 607.24 19,365.86 6,595.56
===============================================
----------------------------------------------------------------------------------------------------------------
Dr. 920, Administrative and General
Salaries............................... $32,000.00
Dr. 921, Office Supplies and Expenses... 4,421.69
Cr. 107.4, Construction Work in
Progress--Storm Damage............. .............. $36,421.69
To charge the administrative costs incurred to obtain the FEMA
grant to the appropriate expense accounts. Administrative costs were
originally charged to Account 107.4.
Salaries............................ $32,000.00
Office Supplies..................... 4,421.69
-------------------------------
Total............................. $36,421.69
===============================
Dr. 571, Maintenance of Overhead Lines.. $3,675.60
Dr. 593, Maintenance of Overhead Lines.. 33,080.40
Cr. 107.4, Construction Work in
Progress Storm Damage.............. .............. $36,756.00
To allocate expenses remaining in Account 107.4 to distribution and
transmission maintenance expense. It was estimated that only 10 percent
is applicable to transmission.
Dr. 426.5, Other Deductions............. $275,000.00
[[Page 55434]]
Dr. 435, Extraordinary Deductions
Dr. 182.1, Extraordinary Property Losses
Cr. 108.5, Accumulated Provision for
Depreciation of Transmission Plant. .............. $35,000.00
Cr. 108.6, Accumulated Provision for
Depreciation of Distribution Plant. .............. 240,000.00
To restore the accumulated provisions for depreciation to their
appropriate levels based upon a study of plant currently in service.
Note: Account 426.5, Other Deductions, should be used to record
the retirement loss as a current period expense. Account 435,
Extraordinary Deductions, may be used when the loss will materially
distort the income statement. Account 182.1, Extraordinary Property
Losses, should be used when such costs are being deferred under the
provisions of Statement No. 71. Costs recorded in this account
should be amortized to Account 407, Amortization of Property Losses,
as the costs are recovered through rates.
Dr. 131.1, Cash--General.................................................... $1,000,000.00
Cr. 253, Other Deferred Credits......................................... ................ $1,000,000.00
To record the receipt of funds from the Federal Emergency
Management Administration (FEMA).
Dr. 253, Other Deferred Credits............................................... $1,000,000.00
Cr. 108.5, Accumulated Provision for Depreciation of Transmission Plant... ................ $74,205.00
Cr. 108.6, Accumulated Provision for Depreciation of Distribution Plant... ................ 191,575.00
Cr. 186, Miscellaneous Deferred Debits.................................... ................ 872.00
Cr. 355, Poles and Fixtures............................................... ................ 129,056.00
Cr. 356, Overhead Conductors and Devices.................................. ................ 99,408.00
Cr. 364, Poles, Towers and Fixtures....................................... ................ 78,916.00
Cr. 365, Overhead Conductors and Devices.................................. ................ 82,840.00
Cr. 368, Line Transformers................................................ ................ 20,056.00
Cr. 369, Services......................................................... ................ 23,108.00
Cr. 373, Street Lighting and Signal Systems............................... ................ 1,744.00
Cr. 426.5, Other Deductions............................................... ................ 219,220.00
Cr. 571, Maintenance of Overhead Lines.................................... ................ 2,900.00
Cr. 593, Maintenance of Overhead Lines.................................... ................ 26,600.00
Cr. 595, Maintenance of Line Transformers................................. ................ 15,300.00
Cr. 597, Maintenance of Meters............................................ ................ 5,200.00
Cr. 920, Administrative and General Salaries.............................. ................ 25,491.00
Cr. 921, Office Supplies and Expenses..................................... ................ 3,509.00
To allocate FEMA funds to the proper accounts.
Summary of Costs
Maintenance:
Account 571, Maintenance of Overhead Lines.......... $3,675.60
Account 593, Maintenance of Overhead Lines.......... 33,687.24
Account 595, Maintenance of Line Transformers....... 19,365.86
Account 597, Maintenance of Meters.................. 6,595.56
---------------
Total Maintenance Costs........................... 63,324.26
===============
Retirement Loss:
Account 108.5, Accumulated Provision for
Depreciation of Transmission Plant................. 93,462.82
Account 108.6, Accumulated Provision for
Depreciation of Distribution Plant................. 240,599.35
Account 426.5, Other Deductions..................... 275,000.00
---------------
Total Retirement Loss............................. 609,062.17
===============
Construction:
Account 186, Miscellaneous Deferred Debits.......... 1,319.85
Account 355, Poles and Fixtures..................... 161,784.05
Account 356, Overhead Conductors and Devices........ 124,704.77
Account 364, Poles, Towers and Fixtures............. 99,075.40
Account 365, Overhead Conductor and Devices......... 104,142.22
Account 368, Line Transformers...................... 25,036.07
Account 369, Services............................... 28,865.08
Account 373, Street Lighting and Signal Systems..... 2,101.60
---------------
Total Construction Cost........................... 547,029.04
===============
Administrative:
Account 920, Administrative and General Salaries.... $32,000.00
Account 921, Office Supplies and Expenses........... 4,421.69
---------------
Total Administrative Cost......................... 36,421.69
===============
Maintenance......................................... 63,324.26
Retirement Loss..................................... 609,062.17
Construction........................................ 547,029.04
Administrative...................................... 36,421.69
---------------
Total Costs....................................... 1,255,837.16
===============
[[Page 55435]]
Distribution of FEMA Funds
Maintenance: 63,324.261,255,837.16=.0504=5.0%
Retirement: 609,062.171,255,837.16=.4850=48.5%
Construction: 547,029.041,255,837.16=.4356=43.6%
Administrative: 36,421.691,255,837.16=.0290=2.9%
Maintenance: $1,000,000.00 x 5.0%=.................... $50,000.00
Retirement: $1,000,000.00 x 48.5%=.................... 485,000.00
Construction: $1,000,000.00 x 43.6%=.................. 436,000.00
Administrative: $1,000,000.00 x 2.9%=................. 29,000.00
-----------------
Total........................................... 1,000,000.00
=================
Distribution of FEMA Funds--Maintenance
Account 571: 3,675.6063,324.26=.0580=5.8%
Account 593: 33,687.2463,324.26=.5320=53.2%
Account 595: 19,365.8663,324.26=.3058=30.6%
Account 597: 6,595.5663,324.26=.1041=10.4%
Account 571: $50,000.00 x 5.8%=....................... $2,900.00
Account 593: $50,000.00 x 53.2%=...................... 26,600.00
Account 595: $50,000.00 x 30.6%=...................... 15,300.00
Account 597: $50,000.00 x 10.4%=...................... 5,200.00
-----------------
Total........................................... 50,000.00
=================
Distribution of FEMA Funds--Retirement Loss
Account 108.5: 93,462.82609,062.17=.1535=15.3%
Account 108.6: 240,599.35609,062.17=.3950=39.5%
Account 426.5: 275,000.00609,062.17=.4515=45.2%
Account 108.5: $485,000.00 x 15.3%=................... $74,205.00
Account 108.6: $485,000.00 x 39.5%=................... 191,575.00
Account 426.5: $485,000.00 x 45.2%=................... 219,220.00
-----------------
Total........................................... 485,000.00
=================
Distribution of FEMA Funds--Construction
Account 186: 1,319.85547,029.04=.0024=.2%
Account 355: 161,784.05547,029.04=.2958=29.6%
Account 356: 124,704.77547,029.04=.2280=22.8%
Account 364: 99,075.40547,029.04=.1811=18.1%
Account 365: 104,142.22547,029.04=.1904=19.0%
Account 368: 25,036.07547,029.04=.0457=4.6%
Account 369: 28,865.08547,029.04=.0528=5.3%
Account 373: 2,101.67547,029.04=.0038=.4%
Account 186: $436,000.00 x .2%=....................... $872.00
Account 355: $436,000.00 x 29.6%=..................... 129,056.00
Account 356: $436,000.00 x 22.8%=..................... 99,408.00
Account 364: $436,000.00 x 18.1%=..................... 78,916.00
Account 365: $436,000.00 x 19.0%=..................... 82,840.00
Account 368: $436,000.00 x 4.6%=...................... 20,056.00
Account 369: $436,000.00 x 5.3%=...................... 23,108.00
Account 373: $436,000.00 x .4%=....................... 1,744.00
-----------------
Total........................................... 436,000.00
=================
Distribution of FEMA Funds--Administrative
Account 920: 32,000.0036,421.69=.8786=87.9%
Account 921: 4,421.6936,421.69=.1213=12.1%
Account 920: $29,000.00 x 87.9%=...................... $25,491.00
Account 921: $29,000.00 x 12.1%=...................... 3,509.00
-----------------
Total........................................... 29,000.00
=================
* * * * *
16. In Sec. 1767.41, Interpretation No. 401 is revised to read as
follows:
* * * * *
401 Computer Software Costs
Computer software consists of programs and routines (sets of
computer instructions) which direct the operation of the computer.
Software may refer to generalized routines useful in computer
operations or to programs for specific applications such as payroll.
The distinction between generalized software and application
software is important. Generalized software provides operating support
for individual applications. This would include programs for such tasks
as
[[Page 55436]]
making printouts of machine-readable records, sorting records,
organizing and maintaining files, translating programs written in a
symbolic language into machine-language instructions, and scheduling
jobs through the computer. These programs are generally furnished by
the manufacturer.
Application software consists of a set of instructions for
performing a particular data processing task. Application programs are
generally written by the user installation, but are frequently obtained
as prewritten packages from software vendors. Application software
includes programs such as payroll, billing, general ledger, as well as
engineering or managerial applications.
Costs incurred with the purchase or development of computer
software shall be accounted for as follows:
1. Capitalize in a subaccount of Account 391, Office Furniture and
Equipment, all costs for generalized software. Depreciate the cost over
the service life (or remaining life) of the main hardware (i.e.,
containing central processor). If the purchase invoice does not break
out or assign a cost to the ``generalized software,'' it is appropriate
to include the full amount in hardware costs. Capitalize in a separate
subaccount of Account 391, all costs for applications software
determined to have a service life of over one year. Depreciate the cost
over the estimated useful service life of the program. This
depreciation period shall not exceed five (5) years. RUS realizes,
however, that there may be circumstances that justify a useful life
longer than 5 years. When this is the case and it is management's
intent to utilize these programs over an extended period, written
justification shall be submitted to RUS for approval.
2. Expense in Account 921, Office Supplies and Expenses, in the
period incurred, all costs associated with the maintenance, updating,
and conversion of files or revision of all software, and all costs for
software with a useful life of less than 1 year. Also expense in
Account 921, the unamortized cost of all software determined, during
the year, to be no longer used by or useful to the cooperative. Such
costs that are clearly applicable to any category of operating expenses
other than the administrative and general category, however, shall be
included in the appropriate account in such category. In accordance
with the USoA, no portion of such costs shall be capitalized to
construction or retirement activities.
In determining the total cost of purchased or internally developed
software, the following items shall be included:
a. Costs incurred for feasibility studies if they result in the
purchase or development of software;
b. All costs related to the actual purchase or development of the
software. These costs must be specifically identifiable with the
software and properly supported by time cards, invoices, or other
documents; and
c. All costs incurred in ``testing and debugging'' the software.
Computer software costs are properly chargeable to Account 107,
Construction Work in Progress, provided that the following criteria are
met:
1. The computer program is specifically dedicated to performing a
construction related activity, and
2. The cost of the software is itemized separate and apart from
other hardware and software costs.
The cost of software programs meeting the above requirements and
having an estimated useful service life in excess of 1 year shall be
recorded in Account 186, Miscellaneous Deferred Debits, and amortized
to Account 107, Construction Work in Progress, over the estimated
service life of the program not to exceed 5 years.
All costs related to training personnel in the use of software
shall be expensed as incurred.
The accounting in this section is not intended to apply to
immaterial amounts. When it is deemed that the costs of the
recordkeeping necessary to amortize these costs outweigh the benefits
to the members, software costs shall be expensed in the year incurred.
For computer costs relating to load control equipment, refer to
Item 118 of this section.
* * * * *
17. In Sec. 1767.41, Interpretation No. 604 is revised to read as
follows:
* * * * *
604 Deferred Compensation
Many utilities participate in the NRECA Deferred Compensation
Program. Based upon the provisions of the program, the following
accounting entries shall be made:
Dr. 186.XX, Miscellaneous Deferred Debits--Deferred Compensation
Cr. 228.3, Accumulated Provision for Pensions and Benefits
To increase the deferred compensation provision by the amount of
the annual deposit to NRECA's Deferred Compensation Fund.
Dr. 128, Other Special Funds--Deferred Compensation
Cr. 131.1, Cash--General
To record the annual deposit to NRECA's Deferred Compensation Fund.
Dr. Construction Work in Progress, Retirement Work in Progress, or
Account 926, Employee Pensions and Benefits, as appropriate.
Cr. 186.XX, Miscellaneous Deferred Debits--Deferred Compensation
To record monthly accrual of deferred compensation.
Note: If an employee joins the deferred compensation program
during the year, use entry #1 to record the additional deposit to
the NRECA Deferred Compensation Fund and increase the monthly
accrual in entry #2 to reflect this deposit.
NRECA provides borrowers that participate in the deferred
compensation program with an annual account statement disclosing the
activity for each Homestead Fund investment including the number of
shares owned, interest income, dividend income, capital gains/losses,
and the value of the shares owned at statement date. Funds may be
invested in the Short-term Bond Fund, the Value Fund, the Short-term
Government Securities Fund, and the Daily Income Fund. Depending upon
the Homestead Fund selected, invested funds may earn interest and
dividend income and may experience unrealized holding gains or losses.
Based upon the information provided on the annual statement, the
following journal entries shall be recorded to recognize the increase
or decrease in the fund assets:
Dr. 128, Other Special Funds--Deferred Compensation
Cr. 419, Interest and Dividend Income
Cr. 421, Miscellaneous Nonoperating Income
To record an increase in the fund value as of December 31, 19xx,
resulting from interest and dividend income and from unrecognized
holding gains on trading securities.
Dr. 926, Employee Pensions and Benefits
Cr. 228.3, Accumulated Provision for Pensions and Benefits
To record an increase in the liability to the employee resulting
from an increase in the investment account.
Dr. 426.5, Other Deductions
Cr. 128, Other Special Funds--Deferred Compensation To record a
decrease in fund value as of December 31, 19xx, resulting from
unrecognized holding losses on trading securities.
Dr. 228.3, Accumulated Provision for Pensions and Benefits
Cr. 926, Employee Pensions and Benefits
[[Page 55437]]
To record a decrease in the liability to the employee resulting
from a decrease in the investment account.
Payments made to participating employees because of retirement or
separation for other reasons shall be recorded using the following
entries:
Dr. 131.1, Cash--General
Cr. 128, Other Special Funds--Deferred Compensation
To record the receipt of funds from NRECA.
and
Dr. 228.3, Accumulated Provision for Pensions and Benefits
Cr. 131.1, Cash--General
To record payment to employee for deferred compensation.
If the borrower has elected to bear the market risk of the funds
which guarantee that the amount of money an employee receives will not
be less than the amount of salary deferred, the following entry shall
be recorded if total payment(s) from NRECA are less than the amount of
salary deferred:
Dr. 926, Employee Pensions and Benefits
Cr. 131.1, Cash--General
To record payment to employee for deferred compensation. Payment
was made because amount returned did not equal salary deferred.
Appropriate disclosure of the terms of the program shall be made in
the notes to the financial statements.
* * * * *
18. In Sec. 1767.41, Interpretation No. 626 is revised to read as
follows:
* * * * *
626 Rural Economic Development Loan and Grant Program
On December 21, 1987, Section 313, Cushion of Credits Payments
Program, was added to the Rural Electrification Act. Section 313
establishes a Rural Economic Development Subaccount and authorizes the
Administrator of the Rural Utilities Service to provide zero interest
loans or grants to RE Act borrowers for the purpose of promoting rural
economic development and job creation projects.
Subpart B, Rural Economic Development Loan and Grant Program, 7 CFR
Part 1703, sets forth the policies and procedures relating to the zero
interest loan program and for approving and administering grants.
The accounting journal entries required to record the transactions
associated with a rural economic development loan are as follows:
Dr. 224.17, RUS Notes Executed--Economic Development--Debit
Cr. 224.16, Long-Term Debt--RUS Economic Development Notes Executed
To record the contractual obligation to RUS for the Economic
Development Notes.
Dr. 131.12, Cash--General--Economic Development Funds
Cr. 224.17, RUS Notes Executed--Economic Development--Debit
To record the receipt of the economic development loan funds.
Dr. 123, Investment in Associated Organizations or
Dr. 124, Other Investments
Cr. 131.12, Cash--General--Economic Development Funds
To record the disbursement of Economic development loan funds to
the project.
Dr. 131.1, Cash--General Funds
Cr. 421, Miscellaneous Nonoperating Income
To record payment received from the project for loan servicing
charges.
Dr. 171, Interest and Dividends Receivable
Cr. 419, Interest and Dividend Income
To record the interest earned on the investment of rural economic
development loan funds.
Dr. 426.1, Donations or
Dr. 426.5, Other Deductions
Cr. 131.1, Cash--General Funds
To record the payment of interest earned in excess of $500.00 on
the investment of rural economic development loan funds.
Note: Interest earned in excess of $500.00 must be used for the
rural economic development project for which the loan funds were
received or returned to RUS.
Dr. 131.12, Cash--General--Economic Development Funds
Cr. 123, Investment in Associated Organizations or
Cr. 124, Other Investments
To record receipt of the repayment, by the project, of economic
development loan funds.
Dr. 224.16, Long-Term Debt--RUS Economic Development Notes Executed
Cr. 131.12, Cash--General--Economic Development Funds
To record the repayment, to RUS, of the economic development loan
funds.
The accounting journal entries required to record the transactions
associated with a rural economic development grant are as follows:
Dr. 131.13, Cash--General--Economic Development Grant Funds
Cr. 224.18, Other Long-Term Debt--Grant Funds;
Cr. 208, Donated Capital; or
Cr. 421, Miscellaneous Nonoperating Income
To record grant funds disbursed by RUS. If the grant agreement
requires repayment of the funds upon termination of the revolving loan
program, Account 224.18 should be credited. If the grant agreement
states that there is absolutely no obligation for repayment upon
termination of the revolving loan program, the funds should be
accounted for as a permanent infusion of capital by crediting Account
208. If, however, the grant agreement is silent as to the final
disposition of the grant funds, Account 421 should be credited.
Dr. 123.3, Investment in Associated Organizations--Federal Economic
Development Loans
Cr. 131.13, Cash--General--Economic Development Grant Funds
To record advances of Federal funds to associated organizations for
authorized rural economic development projects.
Dr. 124.1, Other Investments--Federal Economic Development Loans
Cr. 131.13, Cash--General--Economic Development Grant Funds
To record advances of Federal funds to nonassociated organizations
for authorized rural economic development projects.
Dr. 171, Interest and Dividends Receivable
Cr. 419, Interest and Dividend Income
To record the accrual of interest on loans made to associated and
nonassociated organizations with Federal funds for authorized rural
economic development projects.
Dr. 131.14, Cash--General--Economic Development Non-Federal Revolving
Funds
Cr. 123.3, Investment in Associated Organizations--Federal Economic
Development Loans or
Cr. 124.1, Other Investments--Federal Economic Development Loans
To record repayment of loans made with Federal funds.
Dr. 123.4, Investment in Associated Organizations--Non-Federal Economic
Development Loans
Cr. 131.14, Cash--General--Economic Development Non-Federal
Revolving Funds
To record advances of non-Federal funds to associated organizations
for authorized rural economic development projects.
Dr. 124.2, Other Investments--Non-Federal Economic Development Loans
Cr. 131.14, Cash--General--Economic
[[Page 55438]]
Development Non-Federal Revolving Funds
To record advances of non-Federal funds to nonassociated
organizations for authorized rural economic development projects.
Dr. 171, Interest and Dividends Receivable
Cr. 419, Interest and Dividend Income
To record the accrual of interest on loans made to associated and
nonassociated organizations with non-Federal funds for authorized rural
economic development projects.
Dr. 131.14, Cash--General--Economic Development Non-Federal Revolving
Funds
Cr. 123.4, Investment in Associated Organizations--Non-Federal
Economic Development Loans or
Cr. 124.2, Other Investments--Non-Federal Economic Development
Loans
To record repayment of loans made with non-Federal funds.
* * * * *
19. In Sec. 1767.41, Interpretation No. 627 is revised, and
Interpretation No. 628, Postemployment Benefits, and Interpretation No.
629, Investments in Debt and Equity Securities, are added to read as
follows:
* * * * *
627 Postretirement Benefits
Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other than Pensions (Statement
No. 106), requires reporting entities to accrue the expected cost of
postretirement benefits during the years the employee provides service
to the entity. For purposes of applying the provisions of Statement No.
106, members of the board of directors are considered to be employees
of the cooperative. Prior to the issuance of Statement No. 106, most
reporting entities accounted for postretirement benefit costs on a
``pay-as-you-go'' basis; that is, costs were recognized when paid, not
when the employee provided service to the entity in exchange for the
benefits.
As defined in Statement No. 106, a postretirement benefit plan is a
deferred compensation arrangement in which an employer promises to
exchange future benefits for an employee's current services.
Postretirement benefit plans may be funded or unfunded. Postretirement
benefits include, but are not limited to, health care, life insurance,
tuition assistance, day care, legal services, and housing subsidies
provided outside of a pension plan.
This statement applies to both written plans and to plans whose
existence is implied from a practice of paying postretirement benefits.
An employer's practice of providing postretirement benefits to selected
employees under individual contracts with specified terms determined on
an employee-by-employee basis does not, however, constitute a
postretirement benefit plan under the provisions of this statement.
Postretirement benefit plans generally fall into three categories:
single-employer defined benefit plans, multi-employer plans, and
multiple-employer plans.
The accounting requirements set forth in this interpretation focus
on single- and multiple-employer plans. The accounting requirements set
forth in Statement No. 106 for multiemployer plans or defined
contribution plans shall be adopted for borrowers electing those types
of plans.
Under the provisions of Statement No. 106, there are two components
of the postretirement benefit cost: the current period cost and the
transition obligation. The transition obligation is a one-time accrual
of the costs resulting from services already provided. Statement No.
106 allows the transition obligation to be deferred and amortized on a
straight-line basis over the average remaining service period of the
active employees. If the average remaining service life of the
employees is less than 20 years, a 20-year amortization period may be
used.
Accounting Requirements
All RUS borrowers must adopt the accrual accounting provisions and
reporting requirements set forth in Statement No. 106. The transition
obligation and accrual of the current period cost must be based upon an
actuarial study. This study must be updated to allow the borrower to
comply with the measurement date requirements of Statement No. 106;
however, the study must, at a minimum, be updated every five years. RUS
will not allow electric borrowers to account for postretirement
benefits on a ``pay-as-you-go'' basis.
The deferral and amortization of the transition obligation does not
require RUS approval provided that it complies with the provisions of
Statement No. 106. If, however, a borrower elects to expense the
transition obligation in the current period and subsequently defer this
expense in accordance with Statement of Financial Accounting Standards
No. 71, Accounting for the Effects of Certain Types of Regulation, the
deferral must be approved by RUS. In those states in which the
commission will not allow the recovery of the transition obligation
through future rates, the transition obligation must be expensed, in
its entirety, in the year in which Statement No. 106 is adopted. A
portion of the transition obligation may be charged to construction and
retirement activities provided such charges are properly supported.
Effective Date and Implementation
For plans outside the United States and for defined benefit plans
of employers that (a) are nonpublic enterprises and (b) sponsor defined
benefit postretirement plans with no more than 500 plan participants in
the aggregate, Statement No. 106 is effective for fiscal years
beginning after December 15, 1994. For all other plans, Statement No.
106 is effective for fiscal years beginning after December 15, 1992.
RUS borrowers must comply with the implementation dates set forth
in Statement No. 106. At the time of the adoption of Statement No. 106,
rates must be in place sufficient to recover the current period expense
and any amortization of the transition obligation. A copy of a board
resolution or commission order, as appropriate, indicating that the
transition obligation and current period expense have been included in
the borrower's rates must be submitted to RUS.
Accounting Journal Entries--Transition Obligation
The journal entries required to record the transition obligation
are as follows:
1. If the borrower elects to expense the transition obligation in
the current period and there is no deferral of costs, the following
entry shall be recorded:
Dr. 435.1, Cumulative Effect on Prior Years of a Change in Accounting
Principle or
Dr. 926, Employee Pensions and Benefits
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
Cr. 228.3, Accumulated Provision for Pensions and Benefits
To record the current period recognition of the transition
obligation for postretirement benefits.
Note: A portion of the transition obligation may be charged to
construction and retirement activities provided such charges are
properly supported.
2. If the borrower elects to defer and amortize the transition
obligation in accordance with the provisions of Statement No. 71, the
following entry shall be recorded:
Dr. 182.3, Other Regulatory Assets
Cr. 228.3, Accumulated Provision for Pensions and Benefits
[[Page 55439]]
To record the deferral of the transition obligation under the
provisions of Statement No. 71.
Dr. 926, Employee Pensions and Benefits
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
Cr. 182.3, Other Regulatory Assets
To record the amortization of postretirement benefits expenses as
they are recovered through rates in accordance with Statement No. 71.
3. The deferral and amortization of the transition obligation under
the provisions of Statement No. 106 is considered to be an off balance
sheet item. If, therefore, the borrower elects to defer and amortize
the transition obligation on a straight-line basis over the average
remaining service period of the active employees or 20 years in
accordance with Statement No. 106, no entry is required. Instead, the
transition obligation is recognized as a component of postretirement
benefit cost as it is amortized. It should be noted, however, that the
amount of the unamortized transition obligation must be disclosed in
the notes to the financial statements.
Accounting Journal Entries--Current Period Expense
The current period postretirement expense should be recorded by the
following entry:
Dr. 926, Employee Pensions and Benefits
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
Cr. 228.3, Accumulated Provision for Pensions and Benefits
To record current period postretirement benefit expense.
Dr. 228.3X, Accumulated Provision for Pensions and Benefits--Funded
Cr. 131.1, Cash--General
To record cash payments on a ``pay-as-you-go'' basis for
postretirement benefits.
Accounting Journal Entry--Funding
If a borrower elects to voluntarily fund its postretirement
benefits obligation in an external, irrevocable trust, the following
entry shall be recorded:
Dr. 228.3X, Accumulated Provision for Pensions and Benefits--Funded
Cr. 131.1, Cash--General
To record the funding of postretirement benefits expense into an
external, irrevocable trust.
If a borrower elects to voluntarily fund its postretirement
benefits obligation in an investment vehicle other than an external,
irrevocable trust, the following entry shall be recorded:
Dr. 128, Other Special Funds
Cr. 131.1, Cash--General
To record the funding of postretirement benefits expense into an
investment vehicle other than an external, irrevocable trust.
628 Postemployment Benefits
Statement of Financial Accounting Standards No. 112, Employers'
Accounting for Postemployment Benefits (Statement No. 112) establishes
the standards of financial accounting and reporting for employers who
provide benefits to former or inactive employees after employment but
before retirement. Inactive employees are those who are not currently
rendering service to the employer but who have not been terminated,
including employees who are on disability leave, regardless of whether
they are expected to return to active service. For purposes of applying
the provisions of Statement No. 112, former members of the board of
directors are considered to be employees of the cooperative.
Postemployment benefits include benefits provided to former or
inactive employees, their beneficiaries, and covered dependents. They
include, but are not limited to, salary continuation, supplemental
benefits (including workmen's compensation), health care, job training
and counseling, and life insurance coverage. Benefits may be provided
in cash or in kind and may be paid upon cessation of active employment
or over a specified period of time.
The cost of providing postemployment benefits is considered to be a
part of the compensation provided to an employee in exchange for
current service and should, therefore, be accrued as the employee earns
the right to be paid for future postemployment benefits. Applying the
criteria set forth in Statement of Financial Accounting Standards No.
43, Accounting for Compensated Absences, a postemployment benefit
obligation is accrued when all of the following conditions are met:
1. The employer's obligation for payment for future absences is
attributable to employees' services already performed;
2. The obligation relates to employee rights that vest or
accumulate. Vested rights are considered those rights for which the
employer is obligated to make payment even if the employee terminates.
Rights that accumulate are those earned, but unused rights to
compensated absences that may be carried forward to one or more periods
subsequent to the period in which they are earned;
3. Payment of the compensation is probable; and
4. The amount can be reasonably estimated.
If all of these conditions are not met, the employer must account
for its postemployment benefit obligation in accordance with Statement
of Financial Accounting Standards No. 5, Accounting for Contingencies
(Statement No. 5) when it becomes probable that a liability has been
incurred and the amount of that liability can be reasonably estimated.
If an obligation for postemployment benefits is not accrued in
accordance with the provisions of Statement No. 5 or Statement No. 43
only because the amount cannot be reasonably estimated, the financial
statements should disclose that fact.
Accounting Requirements
All RUS borrowers must adopt the accrual accounting provisions and
reporting requirements set forth in Statement No. 112 as of the
statement's implementation date. A portion of the cumulative effect may
be charged to construction and retirement activities provided such
charges are properly supported. If a borrower elects to defer the
cumulative effect of implementing Statement No. 112 in accordance with
the provisions of Statement of Financial Accounting Standards No. 71,
Accounting for the Effects of Certain Types of Regulation, the deferral
must be approved by RUS.
Effective Date and Implementation
Statement No. 112 is effective for fiscal years beginning after
December 15, 1993. Previously issued financial statements should not be
restated.
RUS borrowers must comply with the implementation date set forth in
Statement No. 112. At the time of the adoption of Statement No. 112,
rates must be in place sufficient to recover the current period
expense.
Accounting Journal Entries
The journal entries required to account for postemployment benefits
are as follows:
Dr. 435.1, Cumulative Effect on Prior Years of a Change in Accounting
Principle
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
Cr. 228.3, Accumulated Provision for Pensions and Benefits
To record the cumulative effect of implementing Statement No. 112.
Note: A portion of the cumulative effect may be charged to
construction and retirement activities provided such charges
[[Page 55440]]
are properly supported. Account 435.1 is closed to Account 219.2,
Nonoperating Margins.
If the borrower elects to defer and amortize the cumulative effect
in accordance with the provisions of Statement No. 71, the following
entry shall be recorded:
Dr. 182.3, Other Regulatory Assets
Cr. 228.3, Accumulated Provision for Pensions and Benefits
To record the deferral of the cumulative effect of implementing
Statement No. 112 in accordance with the provisions of Statement No.
71.
Dr. 926, Employee Pensions and Benefits
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
Cr. 182.3, Other Regulatory Assets
To record the amortization of the cumulative effect of implementing
Statement No. 112 as it is recovered through rates in accordance with
Statement No. 71.
Dr. 926, Employee Pensions and Benefits
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
Cr. 228.3, Accumulated Provision for Pensions and Benefits
To record current period postemployment benefit expense.
Note: If postemployment benefits are accrued under the criteria
set forth in Statement No. 43, this journal entry is made on a
monthly basis. If, however, the accrual is based upon the provisions
of Statement No. 5, this is a one-time entry unless the liability is
reevaluated and subsequently adjusted.
629 Investments in Debt and Equity Securities
Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities (Statement No. 115),
establishes the standards of financial accounting and reporting for
investments in debt securities and for investments in equity securities
that have readily determinable fair values. Statement No. 115 does not
apply to investments in equity securities accounted for under the
equity method nor to investments in consolidated subsidiaries.
At the time of acquisition, an entity must classify debt and equity
securities into one of three categories: held-to-maturity, available-
for-sale, or trading. At the balance sheet date, the appropriateness of
the classifications must be reassessed.
Investments in debt securities are classified as held-to-maturity
and are measured at amortized cost in the balance sheet only if the
reporting entity has the positive intent and ability to hold these
securities to maturity. Debt securities are not classified as held-to-
maturity if the entity has the intent to hold the security only for an
indefinite period; for example, if the security would become available
for sale in response to changes in market interest rates and related
changes in the security's prepayment risk, needs for liquidity, changes
in the availability of and the yield on alternative investments,
changes in funding sources and terms, and changes in foreign currency
risk.
Investments in debt securities that are not classified as held-to-
maturity and equity securities that have readily determinable fair
values are classified as either trading securities or available-for-
sale securities and are measured at fair value in the balance sheet.
Trading securities are those securities that are bought and held
principally for the purpose of selling them in the near future. Trading
generally reflects active and frequent buying and selling and trading
securities are generally used with the objective of generating profits
on short-term differences in prices. Available-for-sale securities are
those investments not classified as either trading securities or held-
to-maturity securities.
Statement No. 115 requires unrealized holding gains and losses for
trading securities to be included in earnings in the current period.
Unrealized holding gains and losses for available-for-sale securities
are excluded from earnings; however, they are reported as a net amount
in a separate component of shareholders' equity until realized.
For individual securities classified as either available-for sale
or held-to-maturity, an entity must determine whether a decline in the
security's fair value below the amortized cost is other than temporary.
If the decline in fair value is determined to be permanent, that is, it
is probable that the entity will not be able to collect all amounts due
under the contractual terms of the security, the realized loss is
accounted for in earnings of the current period. The new cost basis is
not adjusted upward for subsequent recoveries in the fair value.
Subsequent increases in the fair value of available-for-sale securities
are included in the separate component of equity. Subsequent decreases
are also included in the separate component of equity.
All trading securities are reported as current assets in the
balance sheet and individual held-to-maturity and available-for-sale
securities are classified as either current or noncurrent, as
appropriate. Cash flows from the purchase, sale, or maturity of
available-for-sale securities and held-to-maturity securities are
classified in the statement of cash flows as cash flows from investing
activities and reported gross for each security classification.
Accounting Requirements
All RUS borrowers must adopt the accounting, reporting, and
disclosure requirements set forth in Statement No. 115 as of the
statement's implementation date. Unrealized holding gains or losses for
trading securities shall be recorded in either Account 421,
Miscellaneous Nonoperating Income, or Account 426.5, Other Deductions,
as appropriate. Unrealized holding gains or losses for available-for-
sale securities held by the corporate entity are recognized as a
component of stockholder's equity in Account 215.1, Unrealized Gains
and Losses--Debt and Equity Securities. A contra account of the
investment account shall be debited or credited accordingly. Unrealized
gains and losses for available-for-sale securities held in a
decommissioning fund shall increase or decrease, as appropriate, the
reported value of the fund.
Effective Date and Implementation
Statement No. 115 is effective for fiscal years beginning after
December 15, 1993. At the beginning of the entity's fiscal year, the
entity must classify its debt and equity securities on the basis of the
entity's current intent. This statement may not be applied
retroactively to prior years' financial statements. For fiscal years
beginning prior to December 16, 1993, reporting entities are permitted
to apply Statement No. 115 as of the end of a fiscal year for which
annual financial statements have not previously been issued.
Dated: October 2, 1995.
Jill Long Thompson,
Under Secretary, Rural Economic and Community Development.
[FR Doc. 95-27006 Filed 10-31-95; 8:45 am]
BILLING CODE 3410-15-P
