[Federal Register Volume 60, Number 211 (Wednesday, November 1, 1995)]
[Rules and Regulations]
[Pages 55423-55440]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27006]



=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1767

RIN 0572-AA23


Accounting Requirements for RUS Electric Borrowers

AGENCY: Rural Utilities Service, USDA.

ACTION: Final rule.

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

SUMMARY: This final rule amends the Rural Utilities Service's (RUS) 
regulations on accounting policies and procedures for RUS electric 
borrowers as set forth in RUS's regulations concerning Accounting 
Requirements for RUS Electric Borrowers, Uniform System of Accounts. 
This final rule eliminates the requirement that RUS borrowers place the 
difference between the amount accrued for postretirement 

[[Page 55424]]
benefits during the year and the amount paid on a ``pay-as-you-go'' 
basis in an external, irrevocable trust to be used solely for 
postretirement benefits. RUS borrowers may, however, elect to 
voluntarily fund their postretirement benefit obligations. This final 
rule sets forth new accounting interpretations that address the 
requirements of recently issued pronouncements of the Financial 
Accounting Standards Board concerning the accounting for postemployment 
benefits and the accounting for certain investments in debt and equity 
securities.
    In addition, this final rule also sets forth a new accounting 
procedure for storm damage costs and the associated funds received from 
the Federal Emergency Management Administration (FEMA). It also 
clarifies the accounting prescribed for computer software costs by 
specifying the accounts to which generalized software costs should be 
amortized and to which the costs of maintaining, updating, and 
converting files should be expensed.
    In addition, this rule will identify the organizational unit within 
RUS to which borrower requests for departures from or interpretations 
of the RUS Uniform System of Accounts (USoA) should be submitted.
    This regulation will facilitate the effective and economical 
operation of a business enterprise and ensure that adequate and 
reliable financial records be maintained.

EFFECTIVE DATE: This rule is effective December 1, 1995.

FOR FURTHER INFORMATION CONTACT: Ms. Roberta D. Purcell, Chief, 
Technical Accounting and Auditing Staff, Borrower Accounting Division, 
Rural Utilities Service, AG Box 1523, room 2221, South Building, U.S. 
Department of Agriculture, Washington, DC 20250, telephone number (202) 
720-5227.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This final rule has been determined to be not significant for the 
purposes of Executive Order 12866 and therefore has not been reviewed 
by OMB.

Regulatory Flexibility Act Certification

    The Administrator, RUS, has determined that the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.) does not apply to this final 
rule.

Information Collection and Recordkeeping Requirements

    In compliance with the Office of Management and Budget (OMB) 
regulations (5 CFR Part 1320) which implement the Paperwork Reduction 
Act of 1980 (Pub. L. 96-511) and section 3504 of that Act, the 
information collection and recordkeeping requirements contained in this 
final rule have been approved by the Office of Management and Budget 
under control number 0572-0002. Comments regarding these requirements 
may be sent to the United States Department of Agriculture, Clearance 
Office, OIRM, room 404-W, Washington, DC 20250 or to the Office of 
Management and Budget, Office of Information and Regulatory Affairs, 
room 10102, Washington, DC 20503.

National Environmental Policy Act Certification

    The Administrator, RUS, has determined that this final rule will 
not significantly affect the quality of the human environment as 
defined by the National Environmental Policy Act of 1969 (42 U.S.C. 
4321 et seq.). Therefore, this action does not require an environmental 
impact statement or assessment.

Catalog of Federal Domestic Assistance

    The program described by this final rule is listed in the Catalog 
of Federal Domestic Assistance Programs under number 10.850--Rural 
Electrification Loans and Loan Guarantees. This catalog is available on 
a subscription basis from the Superintendent of Documents, the United 
States Government Printing Office, Washington, DC 20402.

Executive Order 12372

    This final rule is excluded from the scope of Executive Order 
12372, Intergovernmental Consultation. A Notice of Final Rule entitled 
Department Programs and Activities Excluded from Executive Order 12372 
(50 FR 47034) exempts RUS electric loans and loan guarantees from 
coverage under this Order.

Executive Order 12778

    This final rule has been reviewed under Executive Order 12778, 
Civil Justice Reform. This final rule: (1) Will not preempt any state 
or local laws, regulations, or policies, unless they present an 
irreconcilable conflict with this rule; (2) Will not have any 
retroactive effect except as stated herein; and (3) Will not require 
administrative proceeding before parties may file suit challenging the 
provisions of this rule. This final rule will not have any retroactive 
effect unless RUS borrowers have not properly complied with generally 
accepted accounting principles. Generally accepted accounting 
principles, as issued by the Financial Accounting Standards Board and 
its predecessors, are applicable to all financial reporting entities, 
including RUS borrowers, regardless of whether RUS publishes its 
interpretations. In accordance with generally accepted accounting 
principles, the accounting principles set forth in Statement of 
Financial Accounting Standards No. 112, Employers' Accounting for 
Postemployment Benefits (Statement No. 112), and Statement of Financial 
Accounting Standards No. 115, Accounting for Certain Investments in 
Debt and Equity Securities (Statement No. 115), should have been 
adopted by all RUS borrowers for fiscal years beginning after December 
15, 1993. The interpretations of these Statements of Financial 
Accounting Standards issued by RUS in this final rule instruct 
borrowers in the proper accounts to be used within the framework and 
requirements of the RUS Uniform System of Accounts. Therefore, this 
final rule will have no retroactive effect except for borrowers that 
did not properly implement Statements No. 112 and No. 115 when and as 
required by generally accepted accounting principles.

Background

    In order to facilitate the effective and economical operation of a 
business enterprise, adequate and reliable financial records must be 
maintained. Accounting records must provide a clear and accurate 
picture of current economic conditions from which management can make 
informed decisions in charting the company's future. The rate-regulated 
environment in which an electric utility operates causes an even 
greater need for financial information that is accurate, complete, and 
comparable with that of other electric utilities.
    RUS, as a federal lender and mortgagee, and in furthering the 
objectives of the Rural Electrification Act of 1936 (RE Act) (7 U.S.C. 
901 et seq.) has a legitimate programmatic interest and a substantial 
financial interest in requiring adequate records to be maintained. In 
order to provide RUS with financial information that can be analyzed 
and compared with the operations of other borrowers in the RUS program, 
all RUS borrowers must maintain financial records that utilize uniform 
accounts and uniform accounting policies and procedures. The standard 
RUS security instrument, therefore, requires borrowers to maintain 
their books, records, and accounts in accordance with methods and 
principles of accounting prescribed 

[[Page 55425]]
by RUS in the USoA for its electric borrowers.
    To ensure that borrowers consistently account for and apply the 
provisions of recent pronouncements of the Financial Accounting 
Standards Board, the USoA must be revised and updated as changes in 
generally accepted accounting principles occur. RUS is, therefore, 
adding two new accounting interpretations to Section 1767.41, 
Accounting Methods and Procedures Required of All RUS Borrowers, that 
address the accounting requirements recently set forth in Statement of 
Financial Accounting Standards No. 112, Employers' Accounting for 
Postemployment Benefits (Statement No. 112), and Statement of Financial 
Accounting Standards No. 115, Accounting for Certain Investments in 
Debt and Equity Securities (Statement No. 115). Statement No. 112 
establishes the standards of financial accounting and reporting for 
employers who provide benefits to former or inactive employees after 
employment but before retirement while Statement No. 115 establishes 
the standards of financial accounting and reporting for investments in 
debt securities and for investments in equity securities that have 
readily determinable fair values. Copies of Statements of Financial 
Accounting Standards may be obtained from the Order Department of the 
Financial Accounting Standards Board, 401 Merritt 7, P.O. Box 5116, 
Norwalk, Connecticut 06856-5116.
    RUS is also amending accounting Interpretation No. 626, Rural 
Economic Development Loan and Grant Program, to establish the 
accounting policies and procedures for the Rural Economic Development 
Grant program recently established by the Rural Business and 
Cooperative Development Service.
    Interpretation No. 604, Deferred Compensation, sets forth the 
specific accounting entries and the balance sheet reporting 
requirements for participation in the National Rural Electric 
Cooperative Association's (NRECA) Deferred Compensation Program. Under 
the terms of this program, a portion of an employee's current salary 
may be deferred until such time as the employee retires or terminates 
employment. The employer makes a contribution into the deferred 
compensation fund in an amount equal to the salary deferred. As such, 
the borrower records both an asset and a liability--an asset in the 
amount of the contributions to the fund and a liability to that 
employee for future payment of the deferred compensation. Current RUS 
procedures require the asset and liability to be offset for financial 
reporting purposes. Financial Accounting Standards Board Interpretation 
No. 39, Offsetting of Amounts Related to Certain Contracts, states that 
the offsetting of assets and liabilities in the balance sheet is 
improper except where a right of offset exists and a right of offset 
exists only when each of two parties owes the other determinable 
amounts. Contributions to the deferred compensation fund are payable to 
the borrower and, as such, the right of offset does not exist. RUS is, 
therefore, amending Interpretation No. 604 to comply with generally 
accepted accounting principles by requiring the asset and liability to 
be reported separately.
    In December 1990, the Financial Accounting Standards Boards issued 
Statement of Financial Accounting Standards No. 106, Employers' 
Accounting for Postretirement Benefits Other than Pensions (Statement 
No. 106). Statement No. 106 requires reporting entities to accrue the 
expected cost of postretirement benefits during the years in which the 
employee provides service to the reporting entity. Prior to the 
issuance of Statement No. 106, most reporting entities accounted for 
postretirement benefit costs on a ``pay-as-you-go'' basis; that is, 
costs were recognized when paid, not when the employee provided service 
to the reporting entity in exchange for the benefits.
    A postretirement benefit plan is a deferred compensation 
arrangement in which an employer promises to exchange future benefits 
for an employee's current services. Postretirement benefits include, 
but are not limited to, health care, life insurance, tuition 
assistance, day care, legal services, and housing subsidies provided 
outside of a pension plan.
    The RUS USoA parallels the USoA prescribed by the Federal Energy 
Regulatory Commission (FERC) for electric utilities and, as such, is 
consistent with the standards of financial accounting for the electric 
utility industry as a whole. As FERC amends its USoA, RUS reviews the 
appropriateness and applicability of each amendment and proposes 
revisions, as necessary, to the RUS USoA.
    On December 17, 1992, FERC issued its policy statement on 
postretirement benefits. Included in its statement was the requirement 
that natural gas pipelines and public utilities make cash deposits into 
an external, irrevocable trust fund, in amounts that are proportional 
and, on an annual basis, equal to the annual test period allowance for 
postretirement benefits. RUS reviewed and analyzed these accounting 
policies and procedures, including the funding requirement, and 
promulgated these requirements in its USoA. The RUS USoA requires RUS 
borrowers to fund the liability associated with postretirement benefit 
costs by making cash deposits into an irrevocable trust.
    Since the issuance of the final rule, RUS borrowers and their 
representatives through the NRECA, have questioned the necessity for 
RUS borrowers to fund their postretirement benefit obligations. FERC 
and a majority of state utility commissions require funding for the 
inclusion of postretirement benefit expenses in rates in order to deter 
investor-owned utilities from arbitrarily increasing postretirement 
benefit costs. Due to the many variables involved in estimating 
postretirement benefit costs, the cost incorporated into rates can 
easily be manipulated if an investor-owned utility desires to increase 
cash flow through increased accruals of postretirement benefit costs. 
By requiring utilities to fund an amount equal to the postretirement 
benefit costs that were recovered through rates, much of the incentive 
for investor-owned utilities to overestimate postretirement benefit 
costs is eliminated.
    The ratepayers/consumers, and investors/owners of an RUS electric 
borrower, because of its cooperative organizational structure, are one 
in the same. RUS cooperatives do not, therefore, have this same 
incentive to over estimate postretirement benefits costs because 
profits do not accrue to a separate, different class of investors/
owners. In fact, RUS electric borrowers have no incentive to 
overestimate postretirement benefit costs to increase rates since the 
investors/owners are the same as the ratepayers/consumers. RUS has, 
therefore, eliminated, through the publication of this final rule, the 
funding requirement currently contained in Section 1767.41, 
Interpretation No. 627, Postretirement Benefits. RUS borrowers may, 
however, elect to voluntarily fund their postretirement benefit 
obligations.
    Finally, RUS is revising Section 1767.13, Departures from the 
Prescribed RUS Uniform System of Accounts, and Section 1767.14, 
Interpretations of the RUS Uniform System of Accounts, to specifically 
identify the organizational unit within RUS to which requests for 
departures from and interpretations of the RUS USoA should be 
addressed. This revision should assist borrowers in filing requests and 
should expedite the review process within RUS. 

[[Page 55426]]


Comments

    A proposed rule entitled Accounting Requirements for RUS Electric 
Borrowers, published September 2, 1994, at 59 FR 45631, invited 
interested parties to submit comments on or before November 1, 1994. 
Twenty-seven comments were received which included submissions from 
NRECA, RUS electric borrowers, certified public accounting firms, and 
statewide organizations. The comments submitted by NRECA were based 
upon a joint review of the proposed rule by the Accounting and 
Depreciation Committee, a subcommittee of the Generation and 
Transmission Managers Association Technical Advisory Committee, and the 
Distribution Systems Accounting and Tax Committee. The following 
paragraphs address the various topics that were discussed by the 
commenters.

Effective Date of Changes

    Comment. Three commenters requested that RUS recognize the 
significant administrative burden placed on borrowers when changes in 
accounting methods are imposed at year end and encouraged RUS to 
implement all final rulemakings at the beginning of a year.
    Response. RUS is sympathetic to the commenters' concerns and, in no 
instance, is it RUS's intent to wait until year end to implement or 
prescribe new accounting requirements. Regulations issued by RUS are, 
however, reviewed for legal sufficiency by the Office of General 
Counsel. RUS regulations are also reviewed by the Office of Management 
and Budget and the Federal Register before final publication. This 
review process can be lengthy and time consuming. As a result, a 
regulation that is scheduled to be published well in advance of a 
year's end may not be published as anticipated. While RUS could delay 
publication of a final rule until after year's end; in many instances, 
the regulation addresses Statements of Financial Accounting Standards 
issued by the Financial Accounting Standards Boards that must be 
implemented by year end. In these circumstances, RUS believes that the 
benefits derived by its borrowers from having ready access to 
accounting guidance outweigh the impositions that may be created by a 
year-end publication date.

Section 1767.13, Departures From the Prescribed RUS USoA

    Comment. Paragraph (d) of Section 1767.13, Departures from the 
Prescribed RUS USoA, requires borrowers to obtain RUS approval prior to 
implementing the provisions of Statements of Financial Accounting 
Standards No. 71, Accounting for the Effects of Certain Types of 
Regulation (Statement No. 71); No. 90, Regulated Enterprises--
Accounting for Abandonments and Disallowances of Plant Costs (Statement 
No. 90); and No. 92, Regulated Enterprises--Accounting for Phase-in 
Plans (Statement No. 92). One commenter suggested that a reference to 
Statement of Financial Accounting Standards No. 101, Regulated 
Enterprises--Accounting for the Discontinuance of Application of FASB 
Statement No. 71 (Statement No. 101), be included as it impacts upon 
regulatory enterprises as do the aforementioned statements. The same 
commenter argued that RUS cannot establish generally accepted 
accounting principles and, therefore, RUS regulations should not 
prohibit or require advance approval of the adoption of accounting 
standards except as to filings with RUS.
    Response. RUS's intent in requiring approval of departures from the 
prescribed RUS USoA was to implement the provisions of Article II, 
Section 12 of the standard form of RUS security instrument which 
requires RUS borrowers to, at all times, keep and safely preserve 
proper books, records, and accounts in which full and true entries will 
be made of all of the dealings, business and affairs of the Mortgagor, 
in accordance with the methods and principles of accounting prescribed 
in the USoA. This covenant and requirement is in each and every 
standard form of RUS security instrument and has been a requirement for 
numerous years. Pursuant to Section 4 of the RE Act, this covenant is 
one of many terms and conditions prescribed by the Administrator of RUS 
relating to the expenditure of the moneys loaned and the security 
therefore with respect to loans and loan guarantees.
    This rule is not an attempt at establishing generally accepted 
accounting principles nor is it intended to prohibit borrowers from 
adhering to the standards issued by the Financial Accounting Standards 
Board. It is intended to insure that similar transactions are accounted 
for in a consistent manner in accordance with the USoA and to allow RUS 
to properly evaluate a borrower's operating performance. Consistency in 
the application of accounting methodologies is critical if RUS is to 
properly evaluate a borrower's financial condition, programmatic 
performance, and ultimately its creditworthiness.
    Statements Nos. 71, 90, and 92 allow rate-regulated enterprises to 
defer current period expenses and revenues beyond that allowed for 
nonregulated enterprises provided that certain criteria are met. 
Included among the criteria is the requirement that an enterprise's 
rates for regulated services or products provided to its customer are 
established by or are subject to approval by an independent, third-
party regulator or by its own governing board empowered by statute or 
contract to establish rates that bind customers. Because the vast 
majority of RUS borrowers are not subject to rate regulation by state 
public utility commissions, their boards of directors, under the 
provisions of Statement No. 71, may defer current period income and 
expense items without the intervention of an independent third-party. 
As such, a borrower could defer current period expenses and, as a 
result, not meet the financial ratio requirements set forth in its 
mortgage. RUS implemented this requirement for purposes of assuring 
that loans and loan guarantees are repaid. Therefore, RUS does not 
believe that this requirement should be revised at this time.
    Statement No. 101, however, is a more conservative standard in that 
it establishes the reporting requirements for enterprises that no 
longer meet the criteria for application of Statement No. 71. It does 
not permit the deferral of income or expense items that might 
arbitrarily inflate a borrower's financial ratios. Therefore, RUS 
believes that there is no benefit to the Federal government of imposing 
a requirement that borrowers obtain RUS approval prior to implementing 
the provisions of Statement No. 101.
    Comment. The revisions proposed to Section 1767.13 were intended to 
specify to whom, in RUS, requests for departures from the USoA and 
approvals of deferrals under Statements Nos. 71, 90, 92 were to be 
addressed. The proposed rule identified the Director of the Borrower 
Accounting Division (BAD) as the contact for such requests. Two 
commenters expressed concern that the area offices should be consulted 
as part of the approval process.
    Response. All requests for approvals of departures from the USoA 
and implementations of deferral plans are processed by the Borrower 
Accounting Division. RUS can provide a more timely response to a 
borrower's request if it is submitted directly to the division that has 
been delegated the authority to review such requests. A request for 
approval of a departure from the USoA is a technical interpretation 
and, as 

[[Page 55427]]
such, is reviewed, processed, and approved by the Director, BAD. A 
request for approval of a deferral plan, however, involves not only the 
accounting aspect of the deferral, but the eventual impact upon RUS's 
loan security, as well. Such requests are, therefore, processed and 
reviewed by BAD for technical accuracy and approved by the area office. 
RUS believes that this process is the most effective and efficient use 
of human resources and provides the most timely response to our 
borrowers. For these reasons, no revisions were made in the final rule.
    Comment. Section 1767.13 requires borrowers to obtain approval 
before implementing an expense or revenue deferral plan. Two commenters 
recommended that more latitude be given to borrowers who utilize 
deferral plans when loan security is not adversely affected by 
deferrals of immaterial dollar amounts. Specifically, the commenters 
recommended that revenue and expense deferrals that, when combined with 
all other deferrals, are less than a specified percentage of net 
utility plant or a specified percentage of equity be exempted from RUS 
approval.
    Response. RUS agrees, in part, that immaterial deferrals that do 
not impact upon loan security could be exempt from RUS approval. 
However, there is a question as to what constitutes an immaterial 
deferral. RUS will consider, in the next proposed revision of Part 
1767, establishing materiality thresholds for approvals of both 
deferral plans and departures from the USoA.
    Comment. Two commenters recommended that RUS establish a time frame 
in which decisions on requests for approvals of deferral plans, 
departures from and interpretations of the USoA will be made by RUS.
    Response. RUS recognizes the importance of obtaining a timely 
response to approval requests. However, RUS believes that the 
establishment of specific time frames for such approvals would be 
impractical under the circumstances. Approvals are often delayed 
because a borrower has submitted incomplete or insufficient 
information. The time required for additional correspondence and the 
uncertainty of when the additional information will be submitted is out 
of RUS' control. As previously discussed in the comment section, RUS 
has undertaken steps to ensure that requests are processed and reviewed 
in the most efficient manner practicable. For these reasons, RUS has 
not instituted approval time frames in this final rule.

Section 1767.14, Interpretation of the RUS Uniform System of Accounts

    Comment. Three commenters requested that RUS clarify whether 
requests for interpretations of the USoA must be posed in writing or if 
oral requests were acceptable.
    Response. It is common practice for RUS to address borrower, 
certified public accountant (CPA), and industry questions orally and, 
in effect, provide interpretations of the USoA. In order to be able to 
rely on an interpretation and in order for RUS to maintain uniformity 
throughout the program, interpretations should be addressed, in 
writing, and Section 1767.14 has been revised accordingly.

Section 1767.41, Accounting Methods and Procedures Required of All RUS 
Borrowers

Interpretation No. 136, Storm Damage
    Comment. Two commenters supported the accounting for storm damage 
as prescribed in Accounting Interpretation No. 136; however, they 
recommended that the interpretation be expanded to include the 
accounting for the administrative fee paid by FEMA.
    Response. RUS agrees with the recommendation and has revised the 
final rule accordingly.
Interpretation No. 401, Computer Software
    Comment. Three commenters questioned whether the cost of 
applications software should be deferred in Account 186, Miscellaneous 
Deferred Debits. One commenter specifically recommended capitalizing 
the cost in Account 301, Organizations. The other commenters argued 
that there is essentially no difference between generalized software 
and applications software and that it is more appropriate to capitalize 
both into a plant account and record depreciation.
    Response. In accordance with a Technical Practice Aid issued by the 
American Institute of Certified Public Accountants, the cost of 
computer software purchased for internal use in activities other than 
research and development should be capitalized and depreciated over its 
estimated useful service life in accordance with Accounting Research 
Bulletin No. 43, Chapter 9, Depreciation, Paragraph 5. RUS, therefore, 
agrees with the commenters that recommended that applications software 
be capitalized and depreciated in a manner similar to that of 
generalized software. Interpretation No. 401 has been revised 
accordingly.
    Comment. Interpretation No. 401 requires that all costs incurred in 
the revision of software or in the maintenance, updating, and 
conversion of files, and all costs of computer software having a useful 
service life of less than 1 year be charged to expense in Account 921, 
Office Supplies and Expenses, in the period incurred. One commenter 
argued that Account 921 is not always the most appropriate account in 
which to classify such costs. Rather, the costs should be 
functionalized to the various construction, retirement, operations, and 
maintenance accounts based upon the activity being supported.
    Response. The note to Account 921 specifically states that office 
expenses that are clearly applicable to any category of operating 
expenses other than the administrative and general category should be 
included in the appropriate account in such category. Account 921 does 
not, however, permit capitalization of any portion of these costs. In 
this final rule, RUS has clarified Interpretation No. 401 to allow such 
costs to be recorded in the appropriate functional operating expense 
accounts; however, capitalization to either construction or retirement 
activities is not permitted.
Interpretation No. 604, Deferred Compensation
    Comment. Interpretation No. 604 sets forth the accounting 
requirements associated with the NRECA Deferred Compensation Program. 
It requires that the accumulated change in the fund value resulting 
from investment gains or losses to be recorded as an increase/decrease 
in the asset and liability accounts. One commenter took issue with this 
accounting methodology and recommended that increases in the fund be 
accounted for as an increase in the asset with an offsetting credit to 
interest income. Because the cooperative has an obligation to pass the 
investment earnings along to the employee, the commenter recommended 
that the liability account should be increased with an offsetting 
charge to interest expense.
    Response. In response to this comment, RUS contacted NRECA to 
obtain a better understanding of the internal operations of the 
Deferred Compensation Program. When an employer offers a deferred 
compensation arrangement to an employee, the amount of the annual 
contribution (deferred compensation), currently an amount up to $7,500, 
is determined. The cooperative then invests these funds with NRECA in 
the cooperative's name. The funds are invested in the Homestead Fund 
which currently consists of four funds--the 

[[Page 55428]]
Short-term Bond Fund, the Value Fund, the Short-term Government 
Securities Fund, and the Daily Income Fund. Detailed investment 
information is maintained for each cooperative by participant. While 
the employee selects the funding program and bears its risk through the 
benefits ultimately derived, the cooperative retains legal ownership of 
the investments.
    The accounting currently set forth in Interpretation No. 604 
assumed that the cooperative bore the investment risk and has, 
therefore, been revised accordingly.
Interpretation No. 626, Rural Economic Development Loan and Grant 
Program
    Comment. Three commenters objected to recording the funds received 
from a Rural Economic Development Grant as income. Rather, the 
commenters believed that the economic development grant funds are more 
in the nature of a capital item provided by Congress to promote 
particular purposes and should therefore, be recorded in Account 208, 
Donated Capital. The commenters argue that classifying these grant 
funds as income distorts a RUS borrower's financial statistics as well 
as adversely impacts upon the 85% member income test a cooperative must 
meet in order to remain income tax exempt.
    Response. The establishment of a revolving loan program by the 
grantee of a Federal grant creates special concerns from an accounting 
perspective. The customary Federal grant is made for a specific project 
or purpose. The income to the grantee is offset by the costs incurred 
in the project, thereby eliminating any net income effect. When a 
revolving loan program is established by the grantee, the grantee 
incurs no immediate expense with which to offset the grant funds. While 
there may be the incidental costs of administering the loan program, no 
additional costs are incurred unless a loan is defaulted upon. In fact, 
under the Rural Business and Cooperative Development Service's grant 
program, after the initial grant funds have been loaned and repaid, the 
borrower may charge a reasonable rate of interest on its revolving 
loans. The grant program may, therefore, actually become income 
producing.
    Additionally, because 7 CFR Part 1703, Subpart B, Rural Economic 
Development Loan and Grant Program, is somewhat ambiguous as to the 
final disposition of the grant funds upon termination of the revolving 
loan program, further accounting concerns are raised.
    The accounting for a rural economic development grant is therefore, 
dependent upon the grant agreement itself. If the agreement requires 
the grantee to repay the grant upon termination of the revolving loan 
program, the funds must be recorded as a liability. If the grant 
agreement stipulates that there is no obligation for repayment, the 
funds should be recorded as a permanent infusion of capital. If, 
however, the agreement is silent as to the final disposition of the 
grant funds, the funds must be recorded as income. The final rule has 
been revised accordingly.
Interpretation No. 627, Postretirement Benefits
    Comment. Of the 27 comments received, only two commenters believed 
that RUS should continue to require borrowers to fund their 
postretirement benefit obligations. Those opposed to the funding 
requirement argued that the funding of postretirement benefits is an 
issue of importance to utility management, rate regulators, and 
employees; however, it should be of little importance to a utility's 
lenders. They argue that cash set aside in an external trust for the 
sole purpose of financing postretirement benefits could adversely 
affect loan security as cash that would otherwise be available to meet 
debt service would be available only for postretirement benefits. Those 
in favor of funding argued that unfunded benefits present a risk of 
future loan defaults. The beneficiaries of the unfunded benefits will 
be co-creditors along with the Federal government and the ratepayers/
owners of the cooperatives will place their own self interest ahead of 
the fiscal integrity of the cooperative, thereby failing to raise rates 
when necessary to meet their Federal debt service obligations.
    Response. While the risk exists that the ratepayers/owners of a 
certain few borrowers may benefit at the detriment of the Federal 
government, the vast majority of RUS borrowers are financially sound, 
fiscally responsible entities. The funding requirement, as currently 
set forth, significantly limits a borrower's investment options. It 
also limits flexibility in managing a borrower's operations and may put 
a borrower at a competitive disadvantage. While RUS strongly encourage 
borrowers to fund their postretirement benefit obligations for the 
reasons proffered above, RUS considers its current funding requirement 
to be unduly burdensome. Similarly, because funding in an irrevocable 
trust may, in fact, impair repayment of loans, RUS believes that it 
would not be undertaking a substantial risk if it were to eliminate the 
funding requirement. For these reasons, no revision was made to the 
final rule.
    Comment. Interpretation No. 627 requires RUS borrowers to have 
rates in place sufficient to recover their current period 
postretirement benefit expense and any amortization of the transition 
obligation at the time of adoption of Statement No. 106. Evidence of 
such rate recovery in the form of a board resolution or commission 
order must be submitted to RUS. One commenter argued that the 
submission of a board resolution is unnecessary. Special attention is 
not required by the board of directors for other types of expenses and 
should not, therefore, be mandated for postretirement benefits.
    Response. Prior to the issuance of Statement No. 106, many 
utilities argued that rate-regulated enterprises should be allowed to 
continue to account for postretirement benefits on a ``pay-as-you-go'' 
basis provided that postretirement benefit costs were included in rates 
on a similar basis. RUS, in Interpretation No. 627, specifically 
requires its borrowers to adopt the accrual accounting provisions of 
Statement No. 106 and prohibits its borrowers from remaining on the 
``pay-as-you-go'' basis. Inherent in this concept is the recovery, 
through rates, of the annual accrual for postretirement benefit costs. 
While RUS agrees that the board is not asked to specifically address 
other current period operating expenses unless they have been deferred 
under the provisions of Statements Nos. 71, 90, and 92, postretirement 
benefit costs, the controversy over accrual versus ``pay-as-you-go'' 
accounting, presents a more contentious issue. The requirement for 
submission of the board resolution or commission order evidences 
adoption of the accrual accounting provisions as required by Statement 
No, 106 and Interpretation No. 627 and for this reason, no change has 
been made to the final rule.
    Comment. Interpretation No. 627 acknowledges that the transition 
obligation resulting from the adoption of Statement No. 106 may be 
deferred in accordance with the provisions of Statement No. 71 provided 
RUS approval is obtained. One commenter indicated that the Emerging 
Issues Task Force (EITF) in EITF No. 92-12, Accounting for OPEB Costs 
by Rate-Regulated Enterprises, limits the combined deferral-recovery 
period authorized by the regulator to approximately twenty years from 
the date of adoption of Statement No. 106. The commenter recommended 
that RUS refer to EITF 92-12 in its regulation and adopt its provision 
accordingly. 

[[Page 55429]]

    Response. Interpretations of generally accepted accounting 
principles are perpetually issued by the EITF and the AICPA. RUS has 
not, therefore, attempted to address each interpretation in its 
rulemakings unless RUS borrowers are specifically affected. Because all 
deferrals require RUS approval, RUS is able to monitor compliance with 
EITF 92-12 at the approval stage and it is not RUS's intention to 
approve a deferral that will conflict with the interpretation. For this 
reason, no revision was made to the final rule.
    Comment. Interpretation No. 627 provides journal entries for the 
various events associated with postretirement benefits. Included among 
the events journalized is a borrower's voluntary funding of its 
postretirement benefit obligation. The journal entry prescribes a debit 
to Account 228.3X, Accumulated Provision for Pensions and Benefits--
Funded, and a credit to Account 131.1, Cash--General. One commenter 
agreed with the journal entry provided that the funds were placed in an 
external, irrevocable trust. The commenter further proffered that if 
the borrower is merely segregating funds to be used to pay obligations 
in the future, reducing the postretirement benefit obligation is 
inappropriate.
    Response. RUS agrees with the commenter and has revised the final 
rule to reflect two journal entries--one reflecting funding into an 
external, irrevocable trust and a second reflecting a segregation of 
funds.
Interpretation No. 629, Investments in Debt and Equity Securities
    Comment. Several commenters specifically agreed with the accounting 
set forth in Interpretation No. 629; however, three commenters 
suggested that RUS address unrealized gains and losses on available-
for-sale securities held as part of a decommissioning fund. 
Specifically, the commenters recommended that such gains and losses 
should increase or decrease the reported value of the fund.
    Response. The accounting for nuclear decommissioning costs and 
their funding has long been an issue of debate and is currently being 
reviewed by the Federal Energy Regulatory Commission and the Financial 
Accounting Standards Board. It was RUS's intention not to address this 
subject matter in any forum until such time as a consensus was drawn. 
However, based upon the public belief that addressing available-for-
sale securities held in a nuclear decommissioning fund will clarify 
this interpretation, RUS has revised Interpretation No. 629 to require 
unrealized holding gains and losses to increase or decrease, as 
appropriate, the reported value of the decommissioning fund.

List of Subjects in 7 CFR Part 1767

    Electric power, Loan programs-energy, Rural areas, Uniform System 
of Accounts.

    For the reasons set out in the preamble, RUS hereby amends 7 CFR 
chapter XVII as follows:

PART 1767--ACCOUNTING REQUIREMENTS FOR RUS ELECTRIC BORROWERS

    1. The authority citation for part 1767 continues to read as 
follows:

    Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; Pub. L. 
103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

    2. Section 1767.13 is amended by revising paragraphs (a), (c) 
introductory text, and (d) to read as follows:


Sec. 1767.13  Departures from the prescribed RUS Uniform System of 
Accounts.

    (a) No departures are to be made to the prescribed RUS USoA without 
the prior written approval of RUS. Requests for departures from the RUS 
USoA shall be addressed, in writing, to the Director, Borrower 
Accounting Division (BAD).
* * * * *
    (c) If any state regulatory authority with jurisdiction over an RUS 
borrower prescribes accounting methods or principles for the borrower 
that are inconsistent with the provisions of this part, the borrower 
must immediately notify the Director, BAD, and provide such documents, 
information, and reports as RUS may request to evaluate the impact that 
such accounting methods or principles may have on the interests of RUS.
* * * * *
    (d) RUS borrowers will not implement the provisions of Statement of 
Financial Accounting Standards (SFAS) No. 71, Accounting for the 
Effects of Certain Types of Regulation, SFAS No. 90, Regulated 
Enterprises--Accounting for Abandonments and Disallowances of Plant 
Costs, SFAS No. 92, Regulated Enterprises--Accounting for Phase-in 
Plans, without the prior written approval of RUS. Requests for approval 
shall be addressed, in writing, to the Director, BAD.
* * * * *
    3. Section 1767.14 is revised to read as follows:


Sec. 1767.14  Interpretations of the RUS Uniform System of Accounts.

    To maintain uniformity in accounting, borrowers must submit 
questions concerning interpretations of the RUS USoA, in writing, to 
the Director, BAD, for consideration and decision.

(Approved by the Office of Management and Budget under control 
number 0572-0002)

    4-6. In Sec. 1767.18, make the following changes:
    a. In the table of contents listing under ``Other Property and 
Investments'', entries for Accounts 123.3, 123.4, 124.1, 124.2 are 
added in numerical order.
    b. In the table of contents listing under ``Current and Accrued 
Assets'', the entry for Account 131.12 is put in numerical order and 
entries for Accounts 131.13 and 131.14 are added in numerical order.
    c. Paragraph C. of Account 123 is revised, and Account 123.3, 
Investment in Associated Organizations-Federal Economic Development 
Loans, and Account 123.4, Investment in Associated Organizations-Non-
Federal Economic Development Loans, are added in numerical order.
    The additions and revision read as follows:

1767.18  Assets and other debits.
* * * * *

Assets and Other Debits

* * * * *

Other Property and Investments

* * * * *
123.3  Investment in Associated Organizations--Federal Economic 
Development Loans
123.4  Investment in Associated Organizations--Non-Federal Economic 
Development Loans
* * * * *
124.1  Other Investments--Federal Economic Development Loans
124.2  Other Investments--Non-Federal Economic Development Loans
* * * * *

Current and Accrued Assets

* * * * *
131.13  Cash--General--Economic Development Grant Funds
131.14  Cash--General--Economic Development Non-Federal Revolving 
Funds
* * * * *
123  Investment in Associated Companies
* * * * *
    C. Account 123 shall be subaccounted as follows:

123.1  Patronage Capital from Associated Cooperatives
123.3  Investment in Associated Organizations--Federal Economic 
Development Loans
123.4  Investment in Associated Organizations--Non-Federal Economic 
Development Loans 

[[Page 55430]]

123.11  Investment in Subsidiary Companies
123.21  Subscriptions to Capital Term Certificates--Supplemental 
Financing
123.22  Investment in Capital Term Certificates--Supplemental 
Financing
123.23  Other Investments in Associated Organizations
* * * * *
123.3  Investment in Associated Organizations--Federal Economic 
Development Loans

    This account shall include investment advances of Federal funds 
received from a Rural Economic Development Grant to associated 
organizations for authorized rural economic development projects.

123.4  Investment in Associated Organizations--Non-Federal Economic 
Development Loans

    This account shall include investment advances of non-Federal funds 
from the Rural Economic Development Grant revolving fund to associated 
organizations for authorized rural economic development projects.
* * * * *
    7. In 1767.18, paragraph C of Account 124 is added preceeding Note 
A, and Account 124.1, Other Investments--Federal Economic Development 
Loans, and Account 124.2, Other Investments--Non-Federal Economic 
Development, are added to read as follows:
* * * * *
124  Other Investments
* * * * *
    C. Account 124 shall be subaccounted as follows:

124.1  Other Investments--Federal Economic Development Loans
124.2  Other Investments--Non-Federal Economic Development Loans
* * * * *
124.1  Other Investments--Federal Economic Development Loans

    This account shall include investment advances of Federal funds 
received from a Rural Economic Development Grant to nonassociated 
organizations for authorized rural economic development projects.

124.2  Other Investments--Non-Federal Economic Development Loans

    This account shall include investment advances of non-Federal funds 
from the Rural Economic Development Grant revolving fund to 
nonassociated organizations for authorized rural economic development 
projects.
* * * * *
    8. In Sec. 1767.18, paragraph B of Account 131 is revised, Account 
131.12 is put in numerical order, and Account 131.13, Cash--General--
Economic Development Grant Funds, and Account 131.14, Cash--General--
Economic Development Non-Federal Revolving Funds, are added in 
numerical order to read as follows:
* * * * *
131  Cash
* * * * *
    B. Account 131 shall be subaccounted as follows:

131.1  Cash--General
131.2  Cash--Construction Fund--Trustee
131.3  Cash--Installation Loan and Collection Fund
131.4  Transfer of Cash
131.12  Cash--General--Economic Development Loan Funds
131.13  Cash--General--Economic Development Grant Funds
131.14  Cash--General--Economic Development Non-Federal Revolving 
Funds
* * * * *
131.13  Cash--General--Economic Development Grant Funds

    This account shall include cash received from the Rural Utilities 
Service for Rural Economic Development Grants. Economic development 
grant funds shall be charged to this account and credited to Account 
224.18, Other Long-Term Debt--Grant Funds; Account 208, Donated 
Capital; or Account 421, Miscellaneous Nonoperating Income, as 
appropriate. This account shall be credited and either Account 123.3, 
Investment in Associated Organizations--Federal Economic Development 
Loans, or Account 124.1, Other Investments--Federal Economic 
Development Loans, shall be debited, as appropriate, with the amount of 
an economic development revolving fund loan.

131.14  Cash--General--Economic Development Non-Federal Revolving Funds

    This account shall include all non-Federal funds comprising the 
economic development revolving fund. It shall include all funds 
supplied by the borrower as well as all cash received from the 
repayment of loans made from the economic development revolving fund. 
This account shall be credited and either Account 123.4, Investment in 
Associated Organizations--Non-Federal Economic Development Loans, or 
Account 124.2, Other Investments--Non-Federal Economic Development 
Loans, shall be debited, as appropriate, with the amount of an economic 
development revolving fund loan.
* * * * *
    9. In Sec. 1767.19, in the table of contents listing under 
``Margins and Equities'', an entry for Account 215.1 is added in 
numerical order and Account 215.1 is added to read as follows:


Sec. 1767.19  Liabilities and other credits.

* * * * *

Liabilities and Other Credits

Margins and Equities

* * * * *
215.1  Unrealized Gains and Losses--Debt and Equity Securities
* * * * *
215.1  Unrealized Gains and Losses--Debt and Equity Securities

    This account shall include the unrealized holding gains and losses 
for available-for-sale securities.
* * * * *
    10--15. In Sec. 1767.41, make the following changes:
    a. In the Numerical Index, the entries Interpretation No. 136, 
Storm Damage; Interpretation No. 628, Postemployment Benefits; and 
Interpretation No. 629, Investments in Debt and Equity Securities, are 
added in numerical order.
    b. In the Subject Matter Index listing under ``D'', an entry for 
``Debt Securities--Investments in,'' is added in alphabetical order.
    c. In the Subject Matter Index listing under ``E'', an entry for 
``Equity Securities--Investments in,'' is added in alphabetical order.
    d. In the Subject Matter Index listing under ``I'', an entry for 
``Investments in Debt and Equity Securities,'' is added in alphabetical 
order.
    e. In the Subject Matter Index listing under ``P'', an entry for 
``Postemployment Benefits,'' is added in alphabetical order.
    f. In the Subject Matter Index listing under ``S'', an entry for 
``Securities--Investments in Debt and Equity,'' and an entry for 
``Storm Damage,'' are added in alphabetical order.
    g. The entry Interpretation No. 136 is added. The additions read as 
follows:


Sec. 1767.41  Accounting methods and procedures required of all RUS 
borrowers.

* * * * *

                             Numerical Index                            
------------------------------------------------------------------------
            Number                                Title                 
------------------------------------------------------------------------
                                                                        
                  *        *        *        *        *                 
136...........................  Storm Damage.                           
                                                                        
                                                                        
                  *        *        *        *        *                 
628...........................  Postemployment Benefits.                
629...........................  Investments in Debt and Equity          
                                 Securities.                            
------------------------------------------------------------------------


                                                                        

[[Page 55431]]
                          Subject Matter Index                          
------------------------------------------------------------------------
                                                       Number           
------------------------------------------------------------------------
                                                                        
                 *        *        *        *        *                  
                                   D                                    
                                                                        
                                                                        
                  *        *        *        *        *                 
Debt Securities--Investments in...........  629                         
                                                                        
                                                                        
                 *        *        *        *        *                  
                                   E                                    
                                                                        
                                                                        
                  *        *        *        *        *                 
Equity Securities--Investments in.........  629                         
                                                                        
                                                                        
                 *        *        *        *        *                  
                                   I                                    
                                                                        
                                                                        
                  *        *        *        *        *                 
Investments in Debt and Equity Securities.  629                         
                                                                        
                                                                        
                 *        *        *        *        *                  
                                   P                                    
                                                                        
                                                                        
                  *        *        *        *        *                 
Postemployment Benefits...................  628                         
                                                                        
                                                                        
                 *        *        *        *        *                  
                                   S                                    
                                                                        
                                                                        
                  *        *        *        *        *                 
Securities--Investments in Debt and Equity  136                         
                                                                        
                                                                        
                  *        *        *        *        *                 
Storm Damage..............................  136                         
                                                                        
                                                                        
                  *        *        *        *        *                 
------------------------------------------------------------------------


136  Storm Damage

    As a result of recent hurricane, flood, and ice storm damage, the 
Rural Utilities Service (RUS) has received several inquiries concerning 
the proper accounting for storm damage costs and the associated funds 
received from the Federal Emergency Management Administration (FEMA).
    Storm damage costs should be accounted for under the work order 
procedure. Units of property destroyed or otherwise removed from 
service must be reflected on retirement work orders and units of 
property installed must be shown on construction work orders. To ensure 
that the accounting for construction and retirement costs is as 
accurate as possible, an effort should be made to accurately accumulate 
material, labor, and overhead costs. Even when extreme care has been 
exercised, however, it may still be necessary to use estimates to 
develop the appropriate cost figures.
    When a storm occurs, a utility typically incurs a large retirement 
loss, all or a part of which should be charged to the accumulated 
provision for depreciation. Storm damage costs over and above 
construction and retirement costs represent maintenance expense. 
Maintenance costs include the costs of resagging lines, straightening 
poles, and replacing minor items of property. When extensive damage has 
occurred, the need to restore the property to an operating condition 
without delay usually results in excessive costs being incurred. 
Standard property unit costs may be used as a guide in determining the 
amount to be capitalized. It should be noted, however, that when 
standard property unit costs are used, all excess costs are charged to 
maintenance expense.
    Because of the storm's destruction, property is retired prematurely 
and as a result, extraordinary retirement losses occur. When such 
extraordinary losses occur, they should be recorded in the year in 
which the losses are incurred. If the recording of such losses will 
materially distort the income statement, such losses may be charged to 
Account 435, Extraordinary Deductions. These costs may be deferred and 
amortized to future periods only if the provisions of Statement of 
Financial Accounting Standards No. 71, Accounting for the Effects of 
Certain Types of Regulation (Statement No. 71), are applied. Under the 
provisions of Statement No. 71, a utility may defer certain costs, 
provided such costs are included in the utility's rate base and 
recovered through future rates. If an RUS borrower elects to apply the 
provisions of Statement No. 71, RUS approval is required. To obtain RUS 
approval, a borrower must submit:
    a. A detailed description of the plan including the nature of the 
expense item, the amount of the deferral, the specific time period for 
rate recovery, and justifying support for the time period selected;
    b. The accounting journal entries being used by the cooperative to 
record the expense deferral and amortization of the deferred costs;
    c. A copy of the state Commission order authorizing recovery of the 
deferred costs through future rates, or in the absence of commission 
jurisdiction, a resolution from the cooperative's board of directors 
authorizing such recovery; and
    d. A statement from the borrower's certified public accountant 
(CPA) or CPA firm indicating that the deferral and amortization of 
these costs is in accordance with generally accepted accounting 
principles.
    To assist in the restoration of the damaged facilities, the Federal 
government often provides assistance through FEMA. Under current FEMA 
procedures, FEMA provides funds for the restoration of facilities based 
upon the cost estimates submitted by the entity requesting assistance. 
If the FEMA grant is for less than 100 percent of the cost estimates, 
FEMA does not specify which costs are to be reimbursed. When the funds 
are received, therefore, they should be accounted for by crediting 
construction, retirement, maintenance expense, and administrative 
expense in direct proportion to the total costs incurred. For example, 
if total storm damage costs are $1,000,000 with $450,000 incurred for 
maintenance, $300,000 for retirement, $200,000 for construction, and 
$50,000 for administrative costs, the FEMA reimbursement should be 
accounted for by applying 45 percent of the funds received as a credit 
to maintenance expense, 30 percent as a credit to retirement costs, 20 
percent as a credit to construction, and 5 percent as a credit to 
administrative and general costs.

                       Accounting Journal Entries                       
Dr. 108.8X, Retirement Work in Progress--                               
 Storm Damage...........................       $1,015.17                
    Cr. 107.4, Construction Work in                                     
     Progress--Storm Damage.............  ..............       $1,015.17
                                                                        

    To transfer the removal costs recorded in Column 11 of Retirement 
Work Order #4401X to Account 108.8X.


Dr. 107.4, Construction Work in                                         
 Progress--Storm Damage.................       $4,141.55                
    Cr. 108.8X, Retirement Work in                                      
     Progress--Storm Damage.............  ..............       $4,141.55
                                                                        

    To remove material salvaged in the ____________________ rebuild 
from Account 107.4. The original entry debited Account 154, Plant 
Materials and Operating Supplies, and credited Account 107.4. (See 
Column 12 of Retirement Work Order #4401X.)


Dr. 108.8X, Retirement Work in Progress--                               
 Storm Damage...........................    $312,230.41                 

[[Page 55432]]
                                                                        
    Cr. 364, Poles Towers and Fixtures..  ..............     $133,377.55
    Cr. 365, Overhead Conductors and                                    
     Devices............................  ..............       59,683.08
    Cr. 368, Lines Transformers.........  ..............       19,704.60
    Cr. 369, Services...................  ..............       97,651.23
    Cr. 373, Street Lighting and Signal                                 
     Systems............................  ..............        1,813.95
                                                                        


    To remove the original cost of property destroyed and retired from 
the classified plant accounts. This retirement is recorded, in detail, 
on Retirement Work Order #4401X. It is understood that this retirement 
covers all distribution property retired or destroyed in the 
____________________ area exclusive of substations and special 
equipment items (meters, meter sockets, current and potential 
transformers, transformers, voltage regulators, oil circuit reclosers 
(OCR), and sectionalizers).


Dr. 108.6, Accumulated Provision for                                    
 Depreciation of Distribution Plant.....     $309,104.03                
    Cr. 108.8X, Retirement Work in                                      
     Progress--Storm Damage.............  ..............     $309,104.03
                                                                        

    To record the net loss due to the retirement of distribution lines 
in the ____________________ area. (See Retirement Work Order #4401X.)


Dr. 364, Poles, Towers and Fixtures.....      $99,075.40                
Dr. 365, Overhead Conductors and Devices      104,142.22                
Dr. 368, Line Transformers..............       25,036.07                
Dr. 369, Services.......................       28,865.08                
Dr. 373, Street Lighting and Signal                                     
 Systems................................        2,101.60                
    Cr. 107.4, Construction Work in                                     
     Progress--Storm Damage.............  ..............     $259,220.37
                                                                        

    To record, in the proper classified plant accounts, Construction 
Work Order #4401 covering the ____________________ rebuild.

This entry includes:                                                    
                                                                        
    Material Issued.....................     $150,336.49                
    Less: Materials Returned............       15,631.39                
                                         -------------------------------
    Net Material Used...................      134,705.10                
    Labor and overhead estimated by                                     
     using standard record unit costs...      124,515.27                
                                         -------------------------------
      Total.............................      259,220.37                
                                         ===============================
Dr. 108.8X, Retirement Work in Progress--                               
 Storm Damage...........................        2,384.00                
    Cr. 107.4, Construction Work in                                     
     Progress--Storm Damage.............  ..............       $2,384.00
                                                                        

    To transfer the removal costs associated with the retirement of old 
transmission lines ($1,966) and substations ($418) to Account 107.4. 
This cost is shown in Column 11 of Retirement Work Order #4400X).


Dr. 107.4, Construction Work in                                         
 Progress--Storm Damage.................       $1,939.74                
    Cr. 108.8X, Retirement Work in                                      
     Progress--Storm Damage.............  ..............       $1,939.74
                                                                        

    To remove material salvaged from transmission lines ($1,545.74) and 
substations ($394.00) from Account 107.4. The original entry debited 
Account 154 and credited Account 107.4. (See Column 12 of Retirement 
Work Order #4400X.)


Dr. 108.8X, Retirement Work in Progress--                               
 Storm Damage...........................     $162,172.06                
    Cr. 355, Poles and Fixtures.........  ..............      $47,738.45
    Cr. 356, Overhead Conductors &                                      
     Devices............................  ..............       80,304.11
    Cr. 362, Station Equipment..........  ..............       34,129.50
                                                                        

    To remove the original cost of transmission lines and substations 
destroyed and retired from the classified plant accounts. (See 
Retirement Work Order #4400X.) (New substations were built and 
separately accounted for on Work Order #4406.)


Dr. 108.5, Accumulated Provision for                                    
 Depreciation of Transmission Plant.....     $128,462.82                
Dr. 108.6, Accumulated Provision for                                    
 Depreciation of Distribution Plant.....       34,153.50                
    Cr. 108.8X, Retirement Work in                                      
     Progress--Storm Damage.............  ..............     $162,616.32
                                                                        

    To record the net loss due to the retirement of transmission lines 
($128,462.82) and substations ($34,153.50). (See Retirement Work Order 
#4400X):

------------------------------------------------------------------------
                                                           Transmission 
                                            Substations        plant    
------------------------------------------------------------------------
Original Cost...........................      $34,129.50     $128,042.56
Add: Cost of Removal....................          418.00        1,966.00
                                         -------------------------------
                                               34,547.50      130,008.56
Less: Material Salvaged.................          394.00        1,545.74
                                         -------------------------------
      Total.............................       34,153.50      128,462.82
                                         ===============================
------------------------------------------------------------------------


Dr. 355, Poles and Fixtures.............     $161,784.05                
Dr. 356, Overhead Conductors and Devices      124,704.77                
    Cr. 107.4, Construction Work in                                     
     Progress--Storm Damage.............  ..............     $286,488.82
                                                                        

    To record, in the proper classified plant accounts, the costs of a 
69 kV transmission line (____________________) as detailed in Work 
Order #4400. This work order includes construction costs as follows:


                                                                        

[[Page 55433]]
Material Used (Net).....................     $171,665.62                
    Labor and overhead estimated by                                     
     using standard record unit costs...      114,823.20                
                                         -------------------------------
      Total.............................      286,488.82                
                                         ===============================
Dr. 107.4, Construction Work in                                         
 Progress--Storm Damage.................         $329.40                
    Cr. 108.8X, Retirement Work in                                      
     Progress--Storm Damage.............  ..............         $329.40
                                                                        


    To correct the journal entry for cash received from the sale of 
scrapped meters and transformers. The original entry credited Account 
107.4 at the time of receipt.


    Transformers........................         $318.00                
    Meters..............................           11.40                
                                         -------------------------------
    Net Materials Used..................          329.40                
                                         ===============================
Dr. 108.8X, Retirement Work in Progress--                               
 Storm Damage...........................  ..............     $137,671.22
    Cr. 365, Overhead Conductors and                                    
     Devices............................  ..............       $4,557.00
    Cr. 368, Line Transformers..........  ..............      112,815.22
    Cr. 370, Meters.....................  ..............       20,299.00
                                                                        

    To remove the cost of meters, transformers, and OCRs lost or 
destroyed from the primary plant accounts. (See Retirement Work Order 
#4402X.)


    737 Transformers....................     $112,815.22                
    31 OCRs.............................        4,557.00                
    1,532 Meters........................       20,299.00                
                                         -------------------------------
      Total.............................      137,671.22                
                                         ===============================
Dr. 108.6, Accumulated Provision for                                    
 Depreciation of Distribution Plant.....     $137,341.82                
    Cr. 108.8X, Retirement Work in                                      
     Progress...........................  ..............     $137,341.82
                                                                        

    To record the net loss due to the retirement of meters, 
transformers, and OCRs. (See Retirement Work Order #4402X.)

    Original Cost.......................     $137,671.22                
    Salvaged Realized...................          329.40                
                                         -------------------------------
      Total.............................      137,341.82                
                                         ===============================
Dr. 186, Miscellaneous Deferred Debits..       $1,319.85                
    Cr. 107.4, Construction Work in                                     
     Progress--Storm Damage.............  ..............       $1,319.85
                                                                        

    To record the engineering costs associated with future construction 
work in the ____________________ area.

Dr. 593, Maintenance of Overhead Lines..         $607.24                
Dr. 595, Maintenance of Line                                            
 Transformers...........................       19,365.86                
Dr. 597, Maintenance of Meters..........        6,595.56                
    Cr. 107.4, Construction Work in                                     
     Progress--Storm Damage.............  ..............      $26,568.66
                                                                        

    To charge the costs of repairing damaged meters, transformers, 
voltage regulators, and OCRs to the appropriate expense accounts. 
Repair costs were originally charged to Account 107.4.

----------------------------------------------------------------------------------------------------------------
                                                                        593             595             597     
----------------------------------------------------------------------------------------------------------------
Meters..........................................................  ..............  ..............       $6,595.56
Transformers....................................................  ..............      $18,869.95  ..............
Voltage Regulators..............................................  ..............          495.91  ..............
Oil Circuit Reclosers...........................................         $607.24  ..............  ..............
                                                                 -----------------------------------------------
      Total.....................................................          607.24       19,365.86        6,595.56
                                                                 ===============================================
----------------------------------------------------------------------------------------------------------------


Dr. 920, Administrative and General                                     
 Salaries...............................      $32,000.00                
Dr. 921, Office Supplies and Expenses...        4,421.69                
    Cr. 107.4, Construction Work in                                     
     Progress--Storm Damage.............  ..............      $36,421.69
                                                                        

    To charge the administrative costs incurred to obtain the FEMA 
grant to the appropriate expense accounts. Administrative costs were 
originally charged to Account 107.4.


    Salaries............................      $32,000.00                
    Office Supplies.....................        4,421.69                
                                         -------------------------------
      Total.............................      $36,421.69                
                                         ===============================
Dr. 571, Maintenance of Overhead Lines..       $3,675.60                
Dr. 593, Maintenance of Overhead Lines..       33,080.40                
    Cr. 107.4, Construction Work in                                     
     Progress Storm Damage..............  ..............      $36,756.00
                                                                        

    To allocate expenses remaining in Account 107.4 to distribution and 
transmission maintenance expense. It was estimated that only 10 percent 
is applicable to transmission.


Dr. 426.5, Other Deductions.............    $275,000.00                 

[[Page 55434]]
                                                                        
Dr. 435, Extraordinary Deductions                                       
Dr. 182.1, Extraordinary Property Losses                                
    Cr. 108.5, Accumulated Provision for                                
     Depreciation of Transmission Plant.  ..............      $35,000.00
    Cr. 108.6, Accumulated Provision for                                
     Depreciation of Distribution Plant.  ..............      240,000.00
                                                                        


    To restore the accumulated provisions for depreciation to their 
appropriate levels based upon a study of plant currently in service.

    Note: Account 426.5, Other Deductions, should be used to record 
the retirement loss as a current period expense. Account 435, 
Extraordinary Deductions, may be used when the loss will materially 
distort the income statement. Account 182.1, Extraordinary Property 
Losses, should be used when such costs are being deferred under the 
provisions of Statement No. 71. Costs recorded in this account 
should be amortized to Account 407, Amortization of Property Losses, 
as the costs are recovered through rates.


Dr. 131.1, Cash--General....................................................     $1,000,000.00                  
    Cr. 253, Other Deferred Credits.........................................  ................     $1,000,000.00
                                                                                                                

    To record the receipt of funds from the Federal Emergency 
Management Administration (FEMA).


Dr. 253, Other Deferred Credits...............................................     $1,000,000.00                
    Cr. 108.5, Accumulated Provision for Depreciation of Transmission Plant...  ................      $74,205.00
    Cr. 108.6, Accumulated Provision for Depreciation of Distribution Plant...  ................      191,575.00
    Cr. 186, Miscellaneous Deferred Debits....................................  ................          872.00
    Cr. 355, Poles and Fixtures...............................................  ................      129,056.00
    Cr. 356, Overhead Conductors and Devices..................................  ................       99,408.00
    Cr. 364, Poles, Towers and Fixtures.......................................  ................       78,916.00
    Cr. 365, Overhead Conductors and Devices..................................  ................       82,840.00
    Cr. 368, Line Transformers................................................  ................       20,056.00
    Cr. 369, Services.........................................................  ................       23,108.00
    Cr. 373, Street Lighting and Signal Systems...............................  ................        1,744.00
    Cr. 426.5, Other Deductions...............................................  ................      219,220.00
    Cr. 571, Maintenance of Overhead Lines....................................  ................        2,900.00
    Cr. 593, Maintenance of Overhead Lines....................................  ................       26,600.00
    Cr. 595, Maintenance of Line Transformers.................................  ................       15,300.00
    Cr. 597, Maintenance of Meters............................................  ................        5,200.00
    Cr. 920, Administrative and General Salaries..............................  ................       25,491.00
    Cr. 921, Office Supplies and Expenses.....................................  ................        3,509.00
                                                                                                                

    To allocate FEMA funds to the proper accounts.


                            Summary of Costs                            
                                                                        
Maintenance:                                                            
    Account 571, Maintenance of Overhead Lines..........       $3,675.60
    Account 593, Maintenance of Overhead Lines..........       33,687.24
    Account 595, Maintenance of Line Transformers.......       19,365.86
    Account 597, Maintenance of Meters..................        6,595.56
                                                         ---------------
      Total Maintenance Costs...........................       63,324.26
                                                         ===============
Retirement Loss:                                                        
    Account 108.5, Accumulated Provision for                            
     Depreciation of Transmission Plant.................       93,462.82
    Account 108.6, Accumulated Provision for                            
     Depreciation of Distribution Plant.................      240,599.35
    Account 426.5, Other Deductions.....................      275,000.00
                                                         ---------------
      Total Retirement Loss.............................      609,062.17
                                                         ===============
Construction:                                                           
    Account 186, Miscellaneous Deferred Debits..........        1,319.85
    Account 355, Poles and Fixtures.....................      161,784.05
    Account 356, Overhead Conductors and Devices........      124,704.77
    Account 364, Poles, Towers and Fixtures.............       99,075.40
    Account 365, Overhead Conductor and Devices.........      104,142.22
    Account 368, Line Transformers......................       25,036.07
    Account 369, Services...............................       28,865.08
    Account 373, Street Lighting and Signal Systems.....        2,101.60
                                                         ---------------
      Total Construction Cost...........................      547,029.04
                                                         ===============
Administrative:                                                         
    Account 920, Administrative and General Salaries....      $32,000.00
    Account 921, Office Supplies and Expenses...........        4,421.69
                                                         ---------------
      Total Administrative Cost.........................       36,421.69
                                                         ===============
    Maintenance.........................................       63,324.26
    Retirement Loss.....................................      609,062.17
    Construction........................................      547,029.04
    Administrative......................................       36,421.69
                                                         ---------------
      Total Costs.......................................    1,255,837.16
                                                         ===============
                                                                        


                                                                        

[[Page 55435]]
                       Distribution of FEMA Funds                       
                                                                        
 Maintenance: 63,324.261,255,837.16=.0504=5.0%                  
Retirement: 609,062.171,255,837.16=.4850=48.5%                  
Construction: 547,029.041,255,837.16=.4356=43.6%                
Administrative: 36,421.691,255,837.16=.0290=2.9%                
                                                                        
Maintenance: $1,000,000.00 x 5.0%=....................        $50,000.00
Retirement: $1,000,000.00 x 48.5%=....................        485,000.00
Construction: $1,000,000.00 x 43.6%=..................        436,000.00
Administrative: $1,000,000.00 x 2.9%=.................         29,000.00
                                                       -----------------
      Total...........................................      1,000,000.00
                                                       =================
                 Distribution of FEMA Funds--Maintenance                
                                                                        
Account 571: 3,675.6063,324.26=.0580=5.8%                       
Account 593: 33,687.2463,324.26=.5320=53.2%                     
Account 595: 19,365.8663,324.26=.3058=30.6%                     
Account 597: 6,595.5663,324.26=.1041=10.4%                      
                                                                        
Account 571: $50,000.00 x 5.8%=.......................         $2,900.00
Account 593: $50,000.00 x 53.2%=......................         26,600.00
Account 595: $50,000.00 x 30.6%=......................         15,300.00
Account 597: $50,000.00 x 10.4%=......................          5,200.00
                                                       -----------------
      Total...........................................         50,000.00
                                                       =================
                                                                        
               Distribution of FEMA Funds--Retirement Loss              
                                                                        
Account 108.5: 93,462.82609,062.17=.1535=15.3%                  
Account 108.6: 240,599.35609,062.17=.3950=39.5%                 
Account 426.5: 275,000.00609,062.17=.4515=45.2%                 
                                                                        
Account 108.5: $485,000.00 x 15.3%=...................        $74,205.00
Account 108.6: $485,000.00 x 39.5%=...................        191,575.00
Account 426.5: $485,000.00 x 45.2%=...................        219,220.00
                                                       -----------------
      Total...........................................        485,000.00
                                                       =================
                Distribution of FEMA Funds--Construction                
                                                                        
 Account 186: 1,319.85547,029.04=.0024=.2%                      
Account 355: 161,784.05547,029.04=.2958=29.6%                   
Account 356: 124,704.77547,029.04=.2280=22.8%                   
Account 364: 99,075.40547,029.04=.1811=18.1%                    
Account 365: 104,142.22547,029.04=.1904=19.0%                   
Account 368: 25,036.07547,029.04=.0457=4.6%                     
Account 369: 28,865.08547,029.04=.0528=5.3%                     
Account 373: 2,101.67547,029.04=.0038=.4%                       
                                                                        
Account 186: $436,000.00 x .2%=.......................           $872.00
Account 355: $436,000.00 x 29.6%=.....................        129,056.00
Account 356: $436,000.00 x 22.8%=.....................         99,408.00
Account 364: $436,000.00 x 18.1%=.....................         78,916.00
Account 365: $436,000.00 x 19.0%=.....................         82,840.00
Account 368: $436,000.00 x 4.6%=......................         20,056.00
Account 369: $436,000.00 x 5.3%=......................         23,108.00
Account 373: $436,000.00 x .4%=.......................          1,744.00
                                                       -----------------
      Total...........................................        436,000.00
                                                       =================
               Distribution of FEMA Funds--Administrative               
                                                                        
 Account 920: 32,000.0036,421.69=.8786=87.9%                    
Account 921: 4,421.6936,421.69=.1213=12.1%                      
                                                                        
Account 920: $29,000.00 x 87.9%=......................        $25,491.00
Account 921: $29,000.00 x 12.1%=......................          3,509.00
                                                       -----------------
      Total...........................................         29,000.00
                                                       =================
                                                                        



* * * * *
    16. In Sec. 1767.41, Interpretation No. 401 is revised to read as 
follows:
* * * * *
401  Computer Software Costs

    Computer software consists of programs and routines (sets of 
computer instructions) which direct the operation of the computer. 
Software may refer to generalized routines useful in computer 
operations or to programs for specific applications such as payroll.
    The distinction between generalized software and application 
software is important. Generalized software provides operating support 
for individual applications. This would include programs for such tasks 
as 

[[Page 55436]]
making printouts of machine-readable records, sorting records, 
organizing and maintaining files, translating programs written in a 
symbolic language into machine-language instructions, and scheduling 
jobs through the computer. These programs are generally furnished by 
the manufacturer.
    Application software consists of a set of instructions for 
performing a particular data processing task. Application programs are 
generally written by the user installation, but are frequently obtained 
as prewritten packages from software vendors. Application software 
includes programs such as payroll, billing, general ledger, as well as 
engineering or managerial applications.
    Costs incurred with the purchase or development of computer 
software shall be accounted for as follows:
    1. Capitalize in a subaccount of Account 391, Office Furniture and 
Equipment, all costs for generalized software. Depreciate the cost over 
the service life (or remaining life) of the main hardware (i.e., 
containing central processor). If the purchase invoice does not break 
out or assign a cost to the ``generalized software,'' it is appropriate 
to include the full amount in hardware costs. Capitalize in a separate 
subaccount of Account 391, all costs for applications software 
determined to have a service life of over one year. Depreciate the cost 
over the estimated useful service life of the program. This 
depreciation period shall not exceed five (5) years. RUS realizes, 
however, that there may be circumstances that justify a useful life 
longer than 5 years. When this is the case and it is management's 
intent to utilize these programs over an extended period, written 
justification shall be submitted to RUS for approval.
    2. Expense in Account 921, Office Supplies and Expenses, in the 
period incurred, all costs associated with the maintenance, updating, 
and conversion of files or revision of all software, and all costs for 
software with a useful life of less than 1 year. Also expense in 
Account 921, the unamortized cost of all software determined, during 
the year, to be no longer used by or useful to the cooperative. Such 
costs that are clearly applicable to any category of operating expenses 
other than the administrative and general category, however, shall be 
included in the appropriate account in such category. In accordance 
with the USoA, no portion of such costs shall be capitalized to 
construction or retirement activities.
    In determining the total cost of purchased or internally developed 
software, the following items shall be included:
    a. Costs incurred for feasibility studies if they result in the 
purchase or development of software;
    b. All costs related to the actual purchase or development of the 
software. These costs must be specifically identifiable with the 
software and properly supported by time cards, invoices, or other 
documents; and
    c. All costs incurred in ``testing and debugging'' the software.
    Computer software costs are properly chargeable to Account 107, 
Construction Work in Progress, provided that the following criteria are 
met:
    1. The computer program is specifically dedicated to performing a 
construction related activity, and
    2. The cost of the software is itemized separate and apart from 
other hardware and software costs.
    The cost of software programs meeting the above requirements and 
having an estimated useful service life in excess of 1 year shall be 
recorded in Account 186, Miscellaneous Deferred Debits, and amortized 
to Account 107, Construction Work in Progress, over the estimated 
service life of the program not to exceed 5 years.
    All costs related to training personnel in the use of software 
shall be expensed as incurred.
    The accounting in this section is not intended to apply to 
immaterial amounts. When it is deemed that the costs of the 
recordkeeping necessary to amortize these costs outweigh the benefits 
to the members, software costs shall be expensed in the year incurred.
    For computer costs relating to load control equipment, refer to 
Item 118 of this section.
* * * * *
    17. In Sec. 1767.41, Interpretation No. 604 is revised to read as 
follows:
* * * * *
604  Deferred Compensation

    Many utilities participate in the NRECA Deferred Compensation 
Program. Based upon the provisions of the program, the following 
accounting entries shall be made:

Dr. 186.XX, Miscellaneous Deferred Debits--Deferred Compensation
    Cr. 228.3, Accumulated Provision for Pensions and Benefits

    To increase the deferred compensation provision by the amount of 
the annual deposit to NRECA's Deferred Compensation Fund.

Dr. 128, Other Special Funds--Deferred Compensation
    Cr. 131.1, Cash--General

    To record the annual deposit to NRECA's Deferred Compensation Fund.

Dr. Construction Work in Progress, Retirement Work in Progress, or 
Account 926, Employee Pensions and Benefits, as appropriate.
    Cr. 186.XX, Miscellaneous Deferred Debits--Deferred Compensation

    To record monthly accrual of deferred compensation.

    Note: If an employee joins the deferred compensation program 
during the year, use entry #1 to record the additional deposit to 
the NRECA Deferred Compensation Fund and increase the monthly 
accrual in entry #2 to reflect this deposit.

    NRECA provides borrowers that participate in the deferred 
compensation program with an annual account statement disclosing the 
activity for each Homestead Fund investment including the number of 
shares owned, interest income, dividend income, capital gains/losses, 
and the value of the shares owned at statement date. Funds may be 
invested in the Short-term Bond Fund, the Value Fund, the Short-term 
Government Securities Fund, and the Daily Income Fund. Depending upon 
the Homestead Fund selected, invested funds may earn interest and 
dividend income and may experience unrealized holding gains or losses. 
Based upon the information provided on the annual statement, the 
following journal entries shall be recorded to recognize the increase 
or decrease in the fund assets:

Dr. 128, Other Special Funds--Deferred Compensation
    Cr. 419, Interest and Dividend Income
    Cr. 421, Miscellaneous Nonoperating Income

    To record an increase in the fund value as of December 31, 19xx, 
resulting from interest and dividend income and from unrecognized 
holding gains on trading securities.

Dr. 926, Employee Pensions and Benefits
    Cr. 228.3, Accumulated Provision for Pensions and Benefits

    To record an increase in the liability to the employee resulting 
from an increase in the investment account.

Dr. 426.5, Other Deductions
    Cr. 128, Other Special Funds--Deferred Compensation To record a 
decrease in fund value as of December 31, 19xx, resulting from 
unrecognized holding losses on trading securities.

Dr. 228.3, Accumulated Provision for Pensions and Benefits
    Cr. 926, Employee Pensions and Benefits


[[Page 55437]]

    To record a decrease in the liability to the employee resulting 
from a decrease in the investment account.
    Payments made to participating employees because of retirement or 
separation for other reasons shall be recorded using the following 
entries:

Dr. 131.1, Cash--General
    Cr. 128, Other Special Funds--Deferred Compensation

    To record the receipt of funds from NRECA.

      and

Dr. 228.3, Accumulated Provision for Pensions and Benefits
    Cr. 131.1, Cash--General

    To record payment to employee for deferred compensation.
    If the borrower has elected to bear the market risk of the funds 
which guarantee that the amount of money an employee receives will not 
be less than the amount of salary deferred, the following entry shall 
be recorded if total payment(s) from NRECA are less than the amount of 
salary deferred:

Dr. 926, Employee Pensions and Benefits
    Cr. 131.1, Cash--General

    To record payment to employee for deferred compensation. Payment 
was made because amount returned did not equal salary deferred.
    Appropriate disclosure of the terms of the program shall be made in 
the notes to the financial statements.
* * * * *
    18. In Sec. 1767.41, Interpretation No. 626 is revised to read as 
follows:
* * * * *
626  Rural Economic Development Loan and Grant Program

    On December 21, 1987, Section 313, Cushion of Credits Payments 
Program, was added to the Rural Electrification Act. Section 313 
establishes a Rural Economic Development Subaccount and authorizes the 
Administrator of the Rural Utilities Service to provide zero interest 
loans or grants to RE Act borrowers for the purpose of promoting rural 
economic development and job creation projects.
    Subpart B, Rural Economic Development Loan and Grant Program, 7 CFR 
Part 1703, sets forth the policies and procedures relating to the zero 
interest loan program and for approving and administering grants.
    The accounting journal entries required to record the transactions 
associated with a rural economic development loan are as follows:

Dr. 224.17, RUS Notes Executed--Economic Development--Debit
    Cr. 224.16, Long-Term Debt--RUS Economic Development Notes Executed

    To record the contractual obligation to RUS for the Economic 
Development Notes.

Dr. 131.12, Cash--General--Economic Development Funds
    Cr. 224.17, RUS Notes Executed--Economic Development--Debit

    To record the receipt of the economic development loan funds.

Dr. 123, Investment in Associated Organizations or
Dr. 124, Other Investments
    Cr. 131.12, Cash--General--Economic Development Funds

    To record the disbursement of Economic development loan funds to 
the project.
Dr. 131.1, Cash--General Funds
    Cr. 421, Miscellaneous Nonoperating Income

    To record payment received from the project for loan servicing 
charges.

Dr. 171, Interest and Dividends Receivable
    Cr. 419, Interest and Dividend Income

    To record the interest earned on the investment of rural economic 
development loan funds.

Dr. 426.1, Donations or
Dr. 426.5, Other Deductions
    Cr. 131.1, Cash--General Funds

    To record the payment of interest earned in excess of $500.00 on 
the investment of rural economic development loan funds.

    Note: Interest earned in excess of $500.00 must be used for the 
rural economic development project for which the loan funds were 
received or returned to RUS.

Dr. 131.12, Cash--General--Economic Development Funds
    Cr. 123, Investment in Associated Organizations or
    Cr. 124, Other Investments

    To record receipt of the repayment, by the project, of economic 
development loan funds.

Dr. 224.16, Long-Term Debt--RUS Economic Development Notes Executed
    Cr. 131.12, Cash--General--Economic Development Funds

    To record the repayment, to RUS, of the economic development loan 
funds.
    The accounting journal entries required to record the transactions 
associated with a rural economic development grant are as follows:

Dr. 131.13, Cash--General--Economic Development Grant Funds
    Cr. 224.18, Other Long-Term Debt--Grant Funds;
    Cr. 208, Donated Capital; or
    Cr. 421, Miscellaneous Nonoperating Income

    To record grant funds disbursed by RUS. If the grant agreement 
requires repayment of the funds upon termination of the revolving loan 
program, Account 224.18 should be credited. If the grant agreement 
states that there is absolutely no obligation for repayment upon 
termination of the revolving loan program, the funds should be 
accounted for as a permanent infusion of capital by crediting Account 
208. If, however, the grant agreement is silent as to the final 
disposition of the grant funds, Account 421 should be credited.

Dr. 123.3, Investment in Associated Organizations--Federal Economic 
Development Loans
    Cr. 131.13, Cash--General--Economic Development Grant Funds

    To record advances of Federal funds to associated organizations for 
authorized rural economic development projects.

Dr. 124.1, Other Investments--Federal Economic Development Loans
    Cr. 131.13, Cash--General--Economic Development Grant Funds

    To record advances of Federal funds to nonassociated organizations 
for authorized rural economic development projects.

Dr. 171, Interest and Dividends Receivable
    Cr. 419, Interest and Dividend Income

    To record the accrual of interest on loans made to associated and 
nonassociated organizations with Federal funds for authorized rural 
economic development projects.

Dr. 131.14, Cash--General--Economic Development Non-Federal Revolving 
Funds
    Cr. 123.3, Investment in Associated Organizations--Federal Economic 
Development Loans or
    Cr. 124.1, Other Investments--Federal Economic Development Loans

    To record repayment of loans made with Federal funds.

Dr. 123.4, Investment in Associated Organizations--Non-Federal Economic 
Development Loans
    Cr. 131.14, Cash--General--Economic Development Non-Federal 
Revolving Funds

    To record advances of non-Federal funds to associated organizations 
for authorized rural economic development projects.

Dr. 124.2, Other Investments--Non-Federal Economic Development Loans
    Cr. 131.14, Cash--General--Economic 

[[Page 55438]]
    Development Non-Federal Revolving Funds

    To record advances of non-Federal funds to nonassociated 
organizations for authorized rural economic development projects.

Dr. 171, Interest and Dividends Receivable
    Cr. 419, Interest and Dividend Income

    To record the accrual of interest on loans made to associated and 
nonassociated organizations with non-Federal funds for authorized rural 
economic development projects.

Dr. 131.14, Cash--General--Economic Development Non-Federal Revolving 
Funds
    Cr. 123.4, Investment in Associated Organizations--Non-Federal 
Economic Development Loans or
    Cr. 124.2, Other Investments--Non-Federal Economic Development 
Loans

    To record repayment of loans made with non-Federal funds.
* * * * *
    19. In Sec. 1767.41, Interpretation No. 627 is revised, and 
Interpretation No. 628, Postemployment Benefits, and Interpretation No. 
629, Investments in Debt and Equity Securities, are added to read as 
follows:
* * * * *
627  Postretirement Benefits

    Statement of Financial Accounting Standards No. 106, Employers' 
Accounting for Postretirement Benefits Other than Pensions (Statement 
No. 106), requires reporting entities to accrue the expected cost of 
postretirement benefits during the years the employee provides service 
to the entity. For purposes of applying the provisions of Statement No. 
106, members of the board of directors are considered to be employees 
of the cooperative. Prior to the issuance of Statement No. 106, most 
reporting entities accounted for postretirement benefit costs on a 
``pay-as-you-go'' basis; that is, costs were recognized when paid, not 
when the employee provided service to the entity in exchange for the 
benefits.
    As defined in Statement No. 106, a postretirement benefit plan is a 
deferred compensation arrangement in which an employer promises to 
exchange future benefits for an employee's current services. 
Postretirement benefit plans may be funded or unfunded. Postretirement 
benefits include, but are not limited to, health care, life insurance, 
tuition assistance, day care, legal services, and housing subsidies 
provided outside of a pension plan.
    This statement applies to both written plans and to plans whose 
existence is implied from a practice of paying postretirement benefits. 
An employer's practice of providing postretirement benefits to selected 
employees under individual contracts with specified terms determined on 
an employee-by-employee basis does not, however, constitute a 
postretirement benefit plan under the provisions of this statement.
    Postretirement benefit plans generally fall into three categories: 
single-employer defined benefit plans, multi-employer plans, and 
multiple-employer plans.
    The accounting requirements set forth in this interpretation focus 
on single- and multiple-employer plans. The accounting requirements set 
forth in Statement No. 106 for multiemployer plans or defined 
contribution plans shall be adopted for borrowers electing those types 
of plans.
    Under the provisions of Statement No. 106, there are two components 
of the postretirement benefit cost: the current period cost and the 
transition obligation. The transition obligation is a one-time accrual 
of the costs resulting from services already provided. Statement No. 
106 allows the transition obligation to be deferred and amortized on a 
straight-line basis over the average remaining service period of the 
active employees. If the average remaining service life of the 
employees is less than 20 years, a 20-year amortization period may be 
used.

Accounting Requirements

    All RUS borrowers must adopt the accrual accounting provisions and 
reporting requirements set forth in Statement No. 106. The transition 
obligation and accrual of the current period cost must be based upon an 
actuarial study. This study must be updated to allow the borrower to 
comply with the measurement date requirements of Statement No. 106; 
however, the study must, at a minimum, be updated every five years. RUS 
will not allow electric borrowers to account for postretirement 
benefits on a ``pay-as-you-go'' basis.
    The deferral and amortization of the transition obligation does not 
require RUS approval provided that it complies with the provisions of 
Statement No. 106. If, however, a borrower elects to expense the 
transition obligation in the current period and subsequently defer this 
expense in accordance with Statement of Financial Accounting Standards 
No. 71, Accounting for the Effects of Certain Types of Regulation, the 
deferral must be approved by RUS. In those states in which the 
commission will not allow the recovery of the transition obligation 
through future rates, the transition obligation must be expensed, in 
its entirety, in the year in which Statement No. 106 is adopted. A 
portion of the transition obligation may be charged to construction and 
retirement activities provided such charges are properly supported.

Effective Date and Implementation

    For plans outside the United States and for defined benefit plans 
of employers that (a) are nonpublic enterprises and (b) sponsor defined 
benefit postretirement plans with no more than 500 plan participants in 
the aggregate, Statement No. 106 is effective for fiscal years 
beginning after December 15, 1994. For all other plans, Statement No. 
106 is effective for fiscal years beginning after December 15, 1992.
    RUS borrowers must comply with the implementation dates set forth 
in Statement No. 106. At the time of the adoption of Statement No. 106, 
rates must be in place sufficient to recover the current period expense 
and any amortization of the transition obligation. A copy of a board 
resolution or commission order, as appropriate, indicating that the 
transition obligation and current period expense have been included in 
the borrower's rates must be submitted to RUS.

Accounting Journal Entries--Transition Obligation

    The journal entries required to record the transition obligation 
are as follows:
    1. If the borrower elects to expense the transition obligation in 
the current period and there is no deferral of costs, the following 
entry shall be recorded:

Dr. 435.1, Cumulative Effect on Prior Years of a Change in Accounting 
Principle or
Dr. 926, Employee Pensions and Benefits
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
    Cr. 228.3, Accumulated Provision for Pensions and Benefits

    To record the current period recognition of the transition 
obligation for postretirement benefits.

    Note: A portion of the transition obligation may be charged to 
construction and retirement activities provided such charges are 
properly supported.

    2. If the borrower elects to defer and amortize the transition 
obligation in accordance with the provisions of Statement No. 71, the 
following entry shall be recorded:

Dr. 182.3, Other Regulatory Assets
    Cr. 228.3, Accumulated Provision for Pensions and Benefits


[[Page 55439]]

    To record the deferral of the transition obligation under the 
provisions of Statement No. 71.

Dr. 926, Employee Pensions and Benefits
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
    Cr. 182.3, Other Regulatory Assets

    To record the amortization of postretirement benefits expenses as 
they are recovered through rates in accordance with Statement No. 71.
    3. The deferral and amortization of the transition obligation under 
the provisions of Statement No. 106 is considered to be an off balance 
sheet item. If, therefore, the borrower elects to defer and amortize 
the transition obligation on a straight-line basis over the average 
remaining service period of the active employees or 20 years in 
accordance with Statement No. 106, no entry is required. Instead, the 
transition obligation is recognized as a component of postretirement 
benefit cost as it is amortized. It should be noted, however, that the 
amount of the unamortized transition obligation must be disclosed in 
the notes to the financial statements.

Accounting Journal Entries--Current Period Expense

    The current period postretirement expense should be recorded by the 
following entry:

Dr. 926, Employee Pensions and Benefits
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
    Cr. 228.3, Accumulated Provision for Pensions and Benefits

    To record current period postretirement benefit expense.

Dr. 228.3X, Accumulated Provision for Pensions and Benefits--Funded
    Cr. 131.1, Cash--General

    To record cash payments on a ``pay-as-you-go'' basis for 
postretirement benefits.

Accounting Journal Entry--Funding

    If a borrower elects to voluntarily fund its postretirement 
benefits obligation in an external, irrevocable trust, the following 
entry shall be recorded:

Dr. 228.3X, Accumulated Provision for Pensions and Benefits--Funded
    Cr. 131.1, Cash--General

    To record the funding of postretirement benefits expense into an 
external, irrevocable trust.
    If a borrower elects to voluntarily fund its postretirement 
benefits obligation in an investment vehicle other than an external, 
irrevocable trust, the following entry shall be recorded:

Dr. 128, Other Special Funds
    Cr. 131.1, Cash--General

    To record the funding of postretirement benefits expense into an 
investment vehicle other than an external, irrevocable trust.

628  Postemployment Benefits

    Statement of Financial Accounting Standards No. 112, Employers' 
Accounting for Postemployment Benefits (Statement No. 112) establishes 
the standards of financial accounting and reporting for employers who 
provide benefits to former or inactive employees after employment but 
before retirement. Inactive employees are those who are not currently 
rendering service to the employer but who have not been terminated, 
including employees who are on disability leave, regardless of whether 
they are expected to return to active service. For purposes of applying 
the provisions of Statement No. 112, former members of the board of 
directors are considered to be employees of the cooperative.
    Postemployment benefits include benefits provided to former or 
inactive employees, their beneficiaries, and covered dependents. They 
include, but are not limited to, salary continuation, supplemental 
benefits (including workmen's compensation), health care, job training 
and counseling, and life insurance coverage. Benefits may be provided 
in cash or in kind and may be paid upon cessation of active employment 
or over a specified period of time.
    The cost of providing postemployment benefits is considered to be a 
part of the compensation provided to an employee in exchange for 
current service and should, therefore, be accrued as the employee earns 
the right to be paid for future postemployment benefits. Applying the 
criteria set forth in Statement of Financial Accounting Standards No. 
43, Accounting for Compensated Absences, a postemployment benefit 
obligation is accrued when all of the following conditions are met:
    1. The employer's obligation for payment for future absences is 
attributable to employees' services already performed;
    2. The obligation relates to employee rights that vest or 
accumulate. Vested rights are considered those rights for which the 
employer is obligated to make payment even if the employee terminates. 
Rights that accumulate are those earned, but unused rights to 
compensated absences that may be carried forward to one or more periods 
subsequent to the period in which they are earned;
    3. Payment of the compensation is probable; and
    4. The amount can be reasonably estimated.
    If all of these conditions are not met, the employer must account 
for its postemployment benefit obligation in accordance with Statement 
of Financial Accounting Standards No. 5, Accounting for Contingencies 
(Statement No. 5) when it becomes probable that a liability has been 
incurred and the amount of that liability can be reasonably estimated.
    If an obligation for postemployment benefits is not accrued in 
accordance with the provisions of Statement No. 5 or Statement No. 43 
only because the amount cannot be reasonably estimated, the financial 
statements should disclose that fact.

Accounting Requirements

    All RUS borrowers must adopt the accrual accounting provisions and 
reporting requirements set forth in Statement No. 112 as of the 
statement's implementation date. A portion of the cumulative effect may 
be charged to construction and retirement activities provided such 
charges are properly supported. If a borrower elects to defer the 
cumulative effect of implementing Statement No. 112 in accordance with 
the provisions of Statement of Financial Accounting Standards No. 71, 
Accounting for the Effects of Certain Types of Regulation, the deferral 
must be approved by RUS.

Effective Date and Implementation

    Statement No. 112 is effective for fiscal years beginning after 
December 15, 1993. Previously issued financial statements should not be 
restated.
    RUS borrowers must comply with the implementation date set forth in 
Statement No. 112. At the time of the adoption of Statement No. 112, 
rates must be in place sufficient to recover the current period 
expense.

Accounting Journal Entries

    The journal entries required to account for postemployment benefits 
are as follows:

Dr. 435.1, Cumulative Effect on Prior Years of a Change in Accounting 
Principle
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
    Cr. 228.3, Accumulated Provision for Pensions and Benefits

    To record the cumulative effect of implementing Statement No. 112.

    Note: A portion of the cumulative effect may be charged to 
construction and retirement activities provided such charges 

[[Page 55440]]
are properly supported. Account 435.1 is closed to Account 219.2, 
Nonoperating Margins.

    If the borrower elects to defer and amortize the cumulative effect 
in accordance with the provisions of Statement No. 71, the following 
entry shall be recorded:

Dr. 182.3, Other Regulatory Assets
    Cr. 228.3, Accumulated Provision for Pensions and Benefits

    To record the deferral of the cumulative effect of implementing 
Statement No. 112 in accordance with the provisions of Statement No. 
71.

Dr. 926, Employee Pensions and Benefits
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
    Cr. 182.3, Other Regulatory Assets

    To record the amortization of the cumulative effect of implementing 
Statement No. 112 as it is recovered through rates in accordance with 
Statement No. 71.

Dr. 926, Employee Pensions and Benefits
Dr. 107, Construction Work in Progress
Dr. 108.8, Retirement Work in Progress
    Cr. 228.3, Accumulated Provision for Pensions and Benefits

    To record current period postemployment benefit expense.

    Note: If postemployment benefits are accrued under the criteria 
set forth in Statement No. 43, this journal entry is made on a 
monthly basis. If, however, the accrual is based upon the provisions 
of Statement No. 5, this is a one-time entry unless the liability is 
reevaluated and subsequently adjusted.

629  Investments in Debt and Equity Securities

    Statement of Financial Accounting Standards No. 115, Accounting for 
Certain Investments in Debt and Equity Securities (Statement No. 115), 
establishes the standards of financial accounting and reporting for 
investments in debt securities and for investments in equity securities 
that have readily determinable fair values. Statement No. 115 does not 
apply to investments in equity securities accounted for under the 
equity method nor to investments in consolidated subsidiaries.
    At the time of acquisition, an entity must classify debt and equity 
securities into one of three categories: held-to-maturity, available-
for-sale, or trading. At the balance sheet date, the appropriateness of 
the classifications must be reassessed.
    Investments in debt securities are classified as held-to-maturity 
and are measured at amortized cost in the balance sheet only if the 
reporting entity has the positive intent and ability to hold these 
securities to maturity. Debt securities are not classified as held-to-
maturity if the entity has the intent to hold the security only for an 
indefinite period; for example, if the security would become available 
for sale in response to changes in market interest rates and related 
changes in the security's prepayment risk, needs for liquidity, changes 
in the availability of and the yield on alternative investments, 
changes in funding sources and terms, and changes in foreign currency 
risk.
    Investments in debt securities that are not classified as held-to-
maturity and equity securities that have readily determinable fair 
values are classified as either trading securities or available-for-
sale securities and are measured at fair value in the balance sheet. 
Trading securities are those securities that are bought and held 
principally for the purpose of selling them in the near future. Trading 
generally reflects active and frequent buying and selling and trading 
securities are generally used with the objective of generating profits 
on short-term differences in prices. Available-for-sale securities are 
those investments not classified as either trading securities or held-
to-maturity securities.
    Statement No. 115 requires unrealized holding gains and losses for 
trading securities to be included in earnings in the current period. 
Unrealized holding gains and losses for available-for-sale securities 
are excluded from earnings; however, they are reported as a net amount 
in a separate component of shareholders' equity until realized.
    For individual securities classified as either available-for sale 
or held-to-maturity, an entity must determine whether a decline in the 
security's fair value below the amortized cost is other than temporary. 
If the decline in fair value is determined to be permanent, that is, it 
is probable that the entity will not be able to collect all amounts due 
under the contractual terms of the security, the realized loss is 
accounted for in earnings of the current period. The new cost basis is 
not adjusted upward for subsequent recoveries in the fair value. 
Subsequent increases in the fair value of available-for-sale securities 
are included in the separate component of equity. Subsequent decreases 
are also included in the separate component of equity.
    All trading securities are reported as current assets in the 
balance sheet and individual held-to-maturity and available-for-sale 
securities are classified as either current or noncurrent, as 
appropriate. Cash flows from the purchase, sale, or maturity of 
available-for-sale securities and held-to-maturity securities are 
classified in the statement of cash flows as cash flows from investing 
activities and reported gross for each security classification.

Accounting Requirements

    All RUS borrowers must adopt the accounting, reporting, and 
disclosure requirements set forth in Statement No. 115 as of the 
statement's implementation date. Unrealized holding gains or losses for 
trading securities shall be recorded in either Account 421, 
Miscellaneous Nonoperating Income, or Account 426.5, Other Deductions, 
as appropriate. Unrealized holding gains or losses for available-for-
sale securities held by the corporate entity are recognized as a 
component of stockholder's equity in Account 215.1, Unrealized Gains 
and Losses--Debt and Equity Securities. A contra account of the 
investment account shall be debited or credited accordingly. Unrealized 
gains and losses for available-for-sale securities held in a 
decommissioning fund shall increase or decrease, as appropriate, the 
reported value of the fund.

Effective Date and Implementation

    Statement No. 115 is effective for fiscal years beginning after 
December 15, 1993. At the beginning of the entity's fiscal year, the 
entity must classify its debt and equity securities on the basis of the 
entity's current intent. This statement may not be applied 
retroactively to prior years' financial statements. For fiscal years 
beginning prior to December 16, 1993, reporting entities are permitted 
to apply Statement No. 115 as of the end of a fiscal year for which 
annual financial statements have not previously been issued.

    Dated: October 2, 1995.
Jill Long Thompson,
Under Secretary, Rural Economic and Community Development.
[FR Doc. 95-27006 Filed 10-31-95; 8:45 am]
BILLING CODE 3410-15-P