94-21638. Accounting Requirements for REA Electric Borrowers  

  • [Federal Register Volume 59, Number 170 (Friday, September 2, 1994)]
    [Proposed Rules]
    [Page 0]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 94-21638]
    
    
    [[Page Unknown]]
    
    [Federal Register: September 2, 1994]
    
    
    -----------------------------------------------------------------------
    
    DEPARTMENT OF AGRICULTURE
    Rural Electrification Administration
    
    7 CFR Part 1767
    
     
    
    Accounting Requirements for REA Electric Borrowers
    
    AGENCY: Rural Electrification Administration, USDA.
    
    ACTION: Proposed rule.
    
    -----------------------------------------------------------------------
    
    SUMMARY: The Rural Electrification Administration (REA) proposes to 
    amend its regulations on accounting policies and procedures for REA 
    electric borrowers as set forth in REA's regulation concerning 
    Accounting Requirements for REA Electric Borrowers, Uniform System of 
    Accounts. This proposed rule would eliminate the requirement that REA 
    borrowers place the difference between the amount accrued for 
    postretirement 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. REA borrowers may, however, elect to 
    voluntarily fund their postretirement benefit obligations. This 
    proposed rule would set 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 proposed rule would also set forth a new 
    accounting for storm damage costs and the associated funds received 
    from the Federal Emergency Management Administration (FEMA). It would 
    also clarify 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 proposal would identify the organizational unit 
    within REA to which borrower requests for departures from or 
    interpretations of the REA Uniform System of Accounts (USoA) should be 
    submitted.
    
    DATES: Written comments must be received by REA or carry a postmark or 
    equivalent no later than November 1, 1994.
    
    ADDRESSES: Submit written comments to Ms. Roberta E. Detwiler, Chief, 
    Technical Accounting and Auditing Staff, Borrower Accounting Division, 
    Rural Electrification Administration, room 2222, South Building, U.S. 
    Department of Agriculture, Washington, DC 20250, telephone number (202) 
    720-5227. REA requires a signed original and three copies of all 
    comments (7 CFR part 1700). All comments received will be made 
    available for inspection at room 2234 South Building during regular 
    business hours (7 CFR 1.27 (b)).
    
    FOR FURTHER INFORMATION CONTACT: Ms. Roberta E. Detwiler, Chief, 
    Technical Accounting and Auditing Staff, Borrower Accounting Division, 
    Rural Electrification Administration, room 2222, South Building, U.S. 
    Department of Agriculture, Washington, DC 20250, telephone number (202) 
    720-5227.
    
    SUPPLEMENTARY INFORMATION:
    
    Executive Order 12866
    
        This proposed 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, REA, has determined that the Regulatory 
    Flexibility Act (5 U.S.C. 601 et seq.) does not apply to this proposed 
    rule.
    
    Information Collection and Recordkeeping Requirements
    
        In compliance with the Office of Management and Budget (OMB) 
    regulations (5 CFR Part 1320) which implements 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 
    proposed rule have been submitted to the Office of Management and 
    Budget (OMB). 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, REA, has determined that this proposed 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 interim 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 proposed 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 REA electric loans and loan guarantees from 
    coverage under this Order.
    
    Executive Order 12778
    
        This proposed rule has been reviewed under Executive Order 12778, 
    Civil Justice Reform. This proposed 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; and (3) will not require administrative proceeding 
    before parties may file suit challenging the provisions of this rule.
    
    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.
        REA, as a federal lender and mortgagee, and in furthering the 
    objectives of the Rural Electrification Act (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 REA with financial information that can be analyzed 
    and compared with the operations of other borrowers in the REA program, 
    all REA borrowers must maintain financial records that utilize uniform 
    accounts and uniform accounting policies and procedures. The standard 
    REA security instrument, therefore, requires borrowers to maintain 
    their books, records, and accounts in accordance with methods and 
    principles of accounting prescribed by REA 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. REA is, therefore, 
    proposing to add two new accounting interpretations to Section 1767.41, 
    Accounting Methods and Procedures Required of All REA 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 readily 
    have 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.
        REA is also proposing to amend 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 REA.
        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 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 REA 
    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 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. REA is, 
    therefore, proposing to amend 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 REA 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, REA reviews the 
    appropriateness and applicability of each amendment and proposes 
    revisions, as necessary, to the REA 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 irrevocable, external trust fund, in amounts that are proportional 
    and, on an annual basis, equal to the annual test period allowance for 
    postretirement benefits. REA reviewed and analyzed these accounting 
    policies and procedures, including the funding requirement, and 
    promulgated these requirements in its USoA. The REA USoA requires REA 
    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, REA borrowers and their 
    representatives through the National Rural Electric Cooperative 
    Association, have questioned the necessity for REA 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 be easily 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 
    over estimate postretirement benefit costs is eliminated.
        The ratepayers/consumers, and investors/owners of an REA electric 
    borrower, because of its cooperative organizational structure, are one 
    in the same. REA 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, REA electric borrowers have no incentive to over 
    estimate postretirement benefit costs to increase rates since the 
    investors/owners are the same as the ratepayers/consumers. REA is 
    proposing to eliminate the funding requirement currently contained in 
    Section 1767.41, Interpretation No. 627, Postretirement Benefits. REA 
    borrowers may, however, elect to voluntarily fund their postretirement 
    benefit obligations.
        Finally, REA is proposing to revise Section 1767.13, Departures 
    from the Prescribed REA Uniform System of Accounts, and Section 
    1767.14, Interpretations of the REA Uniform System of Accounts, to 
    specifically identify the organizational unit within REA to which 
    requests for departures from and interpretations of the REA USoA should 
    be addressed. This revision should assist borrowers in filing requests 
    and should expedite the review process within REA.
    
    List of Subjects in 7 CFR Part 1767
    
        Accounting.
    
        For the reasons set out in the preamble, REA hereby proposes to 
    amend 7 CFR chapter XVII as follows:
    
    PART 1767--ACCOUNTING REQUIREMENTS FOR REA ELECTRIC BORROWERS
    
        1. The authority citation for part 1767 continues to read as 
    follows:
    
        Authority: 7 U.S.C. 901 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 REA Uniform System of 
    Accounts.
    
        (a) No departures are to be made to the prescribed REA USoA without 
    the prior written approval of REA. Requests for departures from the REA 
    USoA shall be addressed, in writing, to the Director, Borrower 
    Accounting Division (BAD).
    * * * * *
        (c) If any state regulatory authority with jurisdiction over an REA 
    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 REA may request to evaluate the impact that 
    such accounting methods or principles may have on the interests of REA.
    * * * * *
        (d) REA 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 REA. 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  Interpretation of the REA Uniform System of Accounts.
    
        To maintain uniformity in accounting, borrowers must submit 
    questions concerning interpretations of the REA USoA to the Director, 
    BAD, for consideration and decision.
    
    
    Sec. 1767.18  [Amended]
    
        4. In Sec. 1767.18, in the table of contents listing under Other 
    Property and Investments, the entries Account 123.3, Investment in 
    Associated Companies--Federal Economic Development Loans; Account 
    123.4, Investment in Associated Companies--Non-Federal Economic 
    Development Loans; Account 124.1, Other Investments--Federal Economic 
    Development Loans; and Account 124.2, Other Investments--Non-Federal 
    Economic Development Loans, are added in numerical order.
        5. In Sec. 1767.18, in the table of contents listing under 
    ``Current and Accrued Assets, the entries 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.
        6. In Sec. 1767.18, paragraph C of Account 123 is revised, and 
    Account 123.3, Investment in Associated Companies--Federal Economic 
    Development Loans, and Account 123.4, Investment in Associated 
    Companies--Non-Federal Economic Development Loans, are added to read as 
    follows:
    
    
    Sec. 1767.18  Assets and other debits.
    
    * * * * *
    123  Investment in Associated Companies
    * * * * *
        C. Account 123 shall be subaccounted as follows:
    
    123.1  Patronage Capital from Associated Cooperatives
    123.11  Investment in Subsidiary Companies
    123.21  Subscriptions to Capital Term Certificates--Supplemental 
    Financing
    123.22  Investments in Capital Term Certificates--Supplemental 
    Financing
    123.23  Other Investments in Associated Organizations
    123.3  Investment in Associated Companies--Federal Economic 
    Development Loans
    123.4  Investment in Associated Companies--Non-Federal Economic 
    Development Loans
    * * * * *
    123.3  Investment in Associated Companies--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 Companies--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 Sec. 1767.18, paragraph C of Account 124; 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, and 
    Account 131.13, Cash--General--Economic Development Grant Funds, and 
    Account 131.14, Cash--General--Economic Development Non-Federal 
    Revolving Funds, are added to read as follows:
    * * * * *
    131  Cash
    * * * * *
        B. Account 131 shall be subaccounted as follows:
    
    131.1  Cash--General
    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
    131.2  Cash--Construction Fund--Trustee
    131.3  Cash--Installation Loan and Collection Fund
    131.4  Transfer of Cash
    * * * * *
    131.13  Cash--General--Economic Development Grant Funds
    
        This account shall include cash received from the Rural 
    Electrification Administration for Rural Economic Development Grants. 
    Economic development grant funds shall be charged to this account and 
    credited to Account 421, Miscellaneous Nonoperating Income. This 
    account shall be credited and either Account 123.3, Investment in 
    Associated Companies--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 Companies--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'', the entry Account 215.1, Unrealized Gains and 
    Losses--Debt and Equity Securities, is added in numerical order.
        10. In Sec. 1767.19, Account 215.1 is added to read as follows:
    Sec. 1767.19  Liabilities and other credits.
    * * * * *
        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.
    * * * * *
    Sec. 1767.41  [Amended]
        11. In Sec. 1767.41, 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.
        12. In Sec. 1767.41, in the Subject Matter Index listing under 
    ``S'', the entry Interpretation No. 136, Storm Damage, is added in 
    alphabetical order.
        13. In Sec. 1767.41, in the Subject Matter Index listing under 
    ``P'', the entry Interpretation No. 628, Postemployment Benefits, is 
    added in alphabetical order.
        14. In Sec. 1767.41, in the Subject Matter Index listing, the entry 
    Interpretation No. 629, ``Debt Securities--Investments in,'' is added 
    under ``D'' in alphabetical order; under ``E'', ``Equity Securities--
    Investments in,'' is added in alphabetical order; under ``I'', 
    ``Investments in Debt and Equity Securities,'' is added in alphabetical 
    order; and under ``S'' ``Securities--Investments in Debt and Equity,'' 
    is added in alphabetical order.
        15. In Sec. 1767.41, the entry Interpretation No. 136 is added to 
    read as follows:
    Sec. 1767.41  Accounting methods and procedures required of all REA 
    borrowers.
    * * * * *
        136  Storm Damage
        As a result of recent hurricane, flood, and ice storm damage, the 
    Rural Electrification Administration (REA) 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 REA borrower elects to apply the 
    provisions of Statement No. 71, REA approval is required. To obtain REA 
    approval, a borrower must submit:
        a. 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
        b. 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, and maintenance expense in direct proportion 
    to the total costs incurred. For example, if total storm damage costs 
    are $1,000,000 with $500,000 incurred for maintenance, $300,000 for 
    retirement, and $200,000 for construction, the FEMA reimbursement 
    should be accounted for by applying 50 percent of the funds received as 
    a credit to maintenance expense, 30 percent as a credit to retirement 
    costs, and 20 percent as a credit to construction.
    
    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
      Cr. 364, Poles, Towers & Fixtures...........  ...........  $133,377.55
      Cr. 365, Overhead Conductors & Devices......  ...........    59,683.08
      Cr. 368, Lines Transformers.................  ...........    19,704.60
      Cr. 369, Services...........................  ...........    97,651.23
      Cr. 373, Street Lighting & 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 & Fixtures.............   $99,075.40             
    Dr. 365, Overhead Conductors & Devices........   104,142.22             
    Dr. 368, Line Transformers....................    25,036.07             
    Dr. 369, Services.............................    28,865.08             
    Dr. 373, Street Lighting & 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 & 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.):                                                              
                                                 Substations   Transmission 
                                                                   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 & Fixtures...............     $161,784.05                
    Dr. 356, Overhead Conductors & Devices..      124,704.77                
    Cr. 107.4, Construction Work in                                         
     Progress--.............................                                
        Storm Damage........................                  Sec. 286,488.8
                                                                          2 
    To record, in the proper classified plant accounts, the costs of a 69 kV
     transmission line (________) as detailed in Work Order #4400. This     
     labor includes construction costs as follows:                          
        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 & 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. 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             
    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.  ...............        76,500.00
      Cr. 108.6, Accumulated Provision for                                  
       Depreciation of Distribution Plant.  ...............       197,500.00
      Cr. 186, Miscellaneous Deferred                                       
       Debits.............................  ...............           896.00
      Cr. 355, Poles & Fixtures...........  ...............       132,608.00
      Cr. 356, Overhead Conductors &                                        
       Devices............................  ...............       102,144.00
      Cr. 364, Poles, Towers & Fixtures...  ...............        81,088.00
      Cr. 365, Overhead Conductors &                                        
       Devices............................  ...............        85,120.00
      Cr. 368, Line Transformers..........  ...............        20,608.00
      Cr. 369, Services...................  ...............        23,744.00
      Cr. 373, Street Lighting & Signal                                     
       Systems............................  ...............         1,792.00
      Cr. 426.5, Other Deductions.........  ...............       226,000.00
      Cr. 571, Maintenance of Overhead                                      
       Lines..............................  ...............         3,016.00
      Cr. 593, Maintenance of Overhead                                      
       Lines..............................  ...............        27,664.00
      Cr. 595, Maintenance of Line                                          
       Transformers.......................  ...............        15,912.00
      Cr. 597, Maintenance of Meters......  ...............        5,408.00 
    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 & Fixtures.....  ...............       161,784.05
        Account 356, Overhead Conductors &                                  
         Devices..........................  ...............       124,704.77
        Account 364, Poles, Towers &                                        
         Fixtures.........................  ...............        99,075.40
        Account 365, Overhead Conductor &                                   
         Devices..........................  ...............       104,142.22
        Account 368, Line Transformers....  ...............        25,036.07
        Account 369, Services.............  ...............        28,865.08
        Account 373, Street Lighting &                                      
         Signal Systems...................  ...............         2,101.60
                                                            ----------------
          Total Construction Cost.........  ...............      $547,029.04
                                                            ================
          Maintenance.....................  ...............       $63,324.26
          Retirement Loss.................  ...............       609,062.17
          Construction....................  ...............       547,029.04
                                                            ----------------
            Total Costs...................  ...............    $1,219,415.47
                                                                            
    
    
    Distribution of FEMA Funds                                                                                      
        Maintenance......................................                63,324.26        =5.19=5.2%                
                                                          -------------------------                                 
                                                                      1,219,415.47                                  
        Retirement.......................................               609,062.17      =49.95=50.0%                
                                                          -------------------------                                 
                                                                      1,219,415.47                                  
        Construction.....................................               547,029.04      =44.85=44.8%                
                                                          -------------------------                                 
                                                                      1,219,415.47                                  
        Maintenance......................................     $1,000,000.00 x 5.2%       =$52,000.00                
        Retirement.......................................    $1,000,000.00 x 50.0%       =500,000.00                
        Construction.....................................    $1,000,000.00 x 44.8%       =448,000.00                
                                                                                                     ---------------
          Total..........................................  .......................     $1,000,000.00                
                                                                                   =================================
    Distribution of FEMA Funds--Maintenance                                                                         
        Account 571......................................                 3,675.60        =5.80=5.8%                
                                                          -------------------------                                 
                                                                         63,324.26                                  
        Account 593......................................                33,687.24      =53.20=53.2%                
                                                          -------------------------                                 
                                                                         63,324.26                                  
        Account 595......................................                19,365.86      =30.58=30.6%                
                                                          -------------------------                                 
                                                                         63,324.26                                  
        Account 597......................................                 6,595.56      =10.41=10.4%                
                                                          -------------------------                                 
                                                                         63,324.26                                  
        Account 571......................................        $52,000.00 x 5.8%                 =       $3,016.00
        Account 593......................................       $52,000.00 x 53.2%                 =       27,664.00
        Account 595......................................       $52,000.00 x 30.6%                 =       15,912.00
        Account 597......................................       $52,000.00 x 10.4%                 =        5,408.00
                                                                                   ---------------------------------
          Total..........................................  .......................  ................      $52,000.00
                                                                                   =================================
    Distribution of FEMA Funds--Retirement Loss                                                                     
        Account 108.5....................................                93,462.82      =15.35=15.3%                
                                                          -------------------------                                 
                                                                        609,062.17                                  
        Account 108.6....................................               240,599.35      =39.50=39.5%                
                                                          -------------------------                                 
                                                                        609,062.17                                  
        Account 426.5....................................               275,000.00      =45.15=45.2%                
                                                          -------------------------                                 
                                                                        609,062.17                                  
        Account 108.5....................................      $500,000.00 x 15.3%                 =     $ 76,500.00
        Account 108.6....................................      $500,000.00 x 39.5%                 =      197,500.00
        Account 426.5....................................      $500,000.00 x 45.2%                 =      226,000.00
                                                                                                     ---------------
          Total..........................................  .......................  ................     $500,000.00
                                                                                                     ===============
    Distribution of FEMA Funds--Construction                                                                        
        Account 186......................................                 1,319.85          =.24=.2%                
                                                          -------------------------                                 
                                                                        547,029.04                                  
        Account 355......................................               161,784.05      =29.58=29.6%                
                                                          -------------------------                                 
                                                                        547,029.04                                  
        Account 356......................................               124,704.77      =22.80=22.8%                
                                                          -------------------------                                 
                                                                        547,029.04                                  
        Account 364......................................                99,075.40      =18.11=18.1%                
                                                          -------------------------                                 
                                                                        547,029.04                                  
        Account 365......................................               104,142.22      =19.04=19.0%                
                                                          -------------------------                                 
                                                                        547,029.04                                  
        Account 368......................................                25,036.07        =4.58=4.6%                
                                                          -------------------------                                 
                                                                        547,029.04                                  
        Account 369......................................                28,865.08        =5.28=5.3%                
                                                          -------------------------                                 
                                                                        547,029.04                                  
        Account 373......................................                 2,101.67          =.38=.4%                
                                                          -------------------------                                 
                                                                        547,029.04                                  
        Account 186......................................        $448,000.00 x .2%                 =         $896.00
        Account 355......................................      $448,000.00 x 29.6%                 =      132,608.00
        Account 356......................................      $448,000.00 x 22.8%                 =      102,144.00
        Account 364......................................      $448,000.00 x 18.1%                 =       81,088.00
        Account 365......................................      $448,000.00 x 19.0%                 =       85,120.00
        Account 368......................................       $448,000.00 x 4.6%                 =       20,608.00
        Account 369......................................       $448,000.00 x 5.3%                 =       23,744.00
        Account 373......................................        $448,000.00 x .4%                 =        1,792.00
                                                                                                     ---------------
          Total..........................................  .......................  ................     $448,000.00
                                                                                                     ===============
                                                                                                                    
    
    * * * * *
        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 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. Defer in Account 186, 
    Miscellaneous Deferred Debits, the cost of all applications software 
    determined to have a service life of over one year. Amortize this cost 
    to Account 425, Miscellaneous Amortization, over the estimated useful 
    life of the program. This amortization period shall not exceed five (5) 
    years. We realize, 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 REA 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 the 
    unamortized cost of all software determined, during year, to be no 
    longer used by or useful to the cooperative.
        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 an annual statement showing activity in the 
    employee's accounts, units owned and value of units at statement date. 
    Therefore, individual employee records do not have to be maintained.
        However, an entry shall be made to show the aggregate change in 
    fund value during the year. This entry can be made by summarizing 
    changes on the individual Statement of Accounts sent by NRECA for 
    distribution to participating employees, as shown:
    
    Value of Units Held in Each Fund
    
    -Total Deposits through December 31, 19xx
    =Change in Fund Value
    Dr. 128, Other Special Funds--Deferred Compensation
    Cr. 228.3, Accumulated Provision for Pensions and Benefits
    
        To record an increase in fund value as of December 31, 19xx.
    
          or
    
    Dr. 228.3, Accumulated Provision for Pensions and Benefits
    Cr. 128, Other Special Funds--Deferred Compensation
    
        To record a decrease in fund value as of December 31, 19xx.
        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 Electrification Administration 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, REA Notes Executed--Economic Development--Debit
    Cr. 224.16, Long-Term Debt--REA Economic Development Notes Executed
    
        To record the contractual obligation to REA for the Economic 
    Development Notes.
    
    Dr. 131.12, Cash--General--Economic Development Funds
    Cr. 224.17, REA 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 REA.
    
    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--REA Economic Development Notes Executed
    Cr. 131.12, Cash--General--Economic Development Funds
    
        To record the repayment, to REA, 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. 421, Miscellaneous Nonoperating Income
    
        To record grant funds disbursed by REA.
    
    Dr. 123.3, Investment in Associated Companies--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 Companies--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 Companies--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 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 Companies--Non-Federal Economic 
    Development Loans or
    Cr. Dr. 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 REA 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. REA 
    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 REA 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 REA. 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.
        REA 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 REA.
    
    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
    
        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, 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.
    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 No. 43, 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 reasonable estimated, the financial 
    statements should disclose that fact.
    
    Accounting Requirements
        All REA 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 REA.
    
    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.
        REA 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 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. 435.1, Cumulative Effect on Prior Years of a Change in Accounting 
    Principle
    
        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 REA 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 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.
    
    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: August 16, 1994.
    Bob J. Nash,
    Under Secretary, Small Community and Rural Development.
    [FR Doc. 94-21638 Filed 9-1-94; 8:45 am]
    BILLING CODE 3410-15-P
    
    
    

Document Information

Published:
09/02/1994
Department:
Agriculture Department
Entry Type:
Proposed Rule
Action:
Proposed rule.
Document Number:
94-21638
Dates:
Written comments must be received by REA or carry a postmark or equivalent no later than November 1, 1994.
Pages:
0-0 (1 pages)
Docket Numbers:
Federal Register: September 2, 1994
CFR: (5)
7 CFR 1767.13
7 CFR 1767.14
7 CFR 1767.18
7 CFR 1767.19
7 CFR 1767.41