[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]


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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.

-----------------------------------------------------------------------

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