Accounting Requirements for REA Electric Borrowers
Federal RegisterSep 2, 1994
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DEPARTMENT OF AGRICULTURE
Rural Electrification Administration
7 CFR Part 1767
Accounting Requirements for REA Electric Borrowers
AGENCY: Rural Electrification Administration, USDA.
ACTION: Proposed rule.
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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
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