(b) Depreciation of vehicles may be accounted for by means of the mileage method under which the service value is charged to depreciation expenses at a fixed-rate per mile run.

22. "Discount," as applied to securities issued or assumed by the carrier, means the excess of the par or face value of the securities, plus interest or dividends accrued at the date of the sale over the cash value of the consideration received from the sale.

23. "Distinct operating unit," means all or any portion of a route or routes covered by a certificate of convenience and necessity or a permit, including motor vehicles and other physical property owned and used in the operation thereof. 24. "Joint facility," means any owned or leased carrier operating property occupied or operated jointly by the carrier and one or more other carriers by motor, rail, water, air, etc., under an arrangement whereby the costs are borne by the parties to the joint agreement. Portions of a structure or other property used exclusively by each of two or more carriers are not joint facilities.

25. "Long-term obligations," means obligations having a life of more than 1 year from date of creation or assumption, all unmatured bonds and receivers' or trustees' certificates, and demand obligations which by mutual agreement will not be paid within 1 year from date of the current financial statements.

26. "Methods of depreciation" (see definition 21).

27. "Minor items," as applied to carrier operating property (see definition 10), means the associated parts or elements of which units of property (see definition 37) are composed.

28. "Net book costs," when applied to property, means the book cost (see definition 8) less related depreciation and amortization.

29. "Nominally issued," as applied to securities issued or assumed by the carrier, means those which have been signed, certified, or otherwise executed and placed with the proper officer for sale and delivery, or pledged, or other wise placed in some special fund of the carrier, but which have not been sold or issued directly to trustees of sinking funds in accordance with contractual requirements.

30. "Person," when not otherwise indicated in the context, means an individual, a corporation, a partnership, an association, a joint-stock company, a

business trust, or any other organization, or any receiver or trustee (see definitions 7 and 11).

31. "Premium," as applied to securities issued or assumed by the carrier, means the excess of the cash value of the consideration received from their sale over the sum of their par (stated value of nopar stocks) or face values plus interest or dividends accrued at the date of sale (see note A under account 2631).

32. "Property retired," as applied to operating property, means property which has been removed, sold, abandoned, destroyed, or which for any cause has been permanently withdrawn from service.

33. "Replacing or replacement," when not otherwise indicated in the context, means the acquisition, construction, or installation of property in place of property of like purpose retired, together with the removal of the property retired.

34. "Salvage value," means the amount received for property retired, less any expenses (including commissions) incurred in connection with the sale or in preparing the property for sale, or, if retained, the amount at which the material recovered is chargeable to Account 1151-Material and Supplies, or other appropriate account.

35. "Service life," means the period between the date when carrier operating property (see definition 10) is placed in service and the date of its retirement. (See definition 32).

36. "Service value," means the difference between the book cost (see definition 8) and the salvage value (see deflnition 34) of carrier operating property.

37. "Unit of property," for the purpose of this system of accounts, means any item of carrier property which when retired, with or without replacements by sale, abandonment, disposal, or replacement, is accounted for by crediting the book cost (see definition 8) thereof to the operating property account in which it is included, as provided in instruction 21.

38. "Used," as applied to operating property, means actually and necessarily in current service or ready for and reasonably required to be currently held for future services.

39. (a) "Income taxes" means taxes based on income determined under provisions of the United States Internal Revenue Code and foreign, state and other taxes (including franchise taxes) based on income.

(b) "Income tax expense" means the amount of income taxes (whether or not currently payable or refundable) allocable to a period in the determination of net income.

(c) "Pretax accounting income" means income or loss for a period, exclusive of related income tax expense.

(d) "Taxable income" means the excess of revenues over deductions or the excess of deductions over revenues to be reported for income tax purposes for a period.

(e) "Timing differences" means differences between the periods in which transactions affect taxable income and the periods in which they enter into the determination of pretax accounting income. Timing differences originate in one period and reverse or "turn around" in one or more subsequent periods. Some timing differences reduce income taxes that would otherwise be payable currently; others increase income taxes that would otherwise be payable currently.

(f) "Permanent differences" means differences between taxable income and pretax accounting income arising from transactions that, under applicable tax laws and regulations, will not be offset by corresponding differences "turn around" in other periods.

or

(g) "Tax effects" means differentials in income taxes of a period attributable to (1) revenue or expense transactions which enter into the determination of pretax accounting income in one period and into the determination of taxable income in another period, (2) deductions or credits that may be carried backward or forward for income tax purposes and (3) adjustments of prior periods and direct entries to other stockholders' equity accounts which enter into the determination of taxable income in a period but which do not enter into the determination of pretax accounting income of that period. A permanent difference does not result in a "tax effect" as that term is used in this definition.

(h) "Deferred taxes" means tax effects which are deferred for allocation to income tax expense of future periods.

(i) "Interperiod tax allocation" means the process of apportioning income taxes among periods.

(j) "Tax allocation within a period" means the process of apportioning income tax expense applicable to a given period between income before extraor

dinary items and extraordinary items, and of associating the income tax effects of adjustments of prior periods and direct entries to other stockholders' equity accounts with these items.

40. (a) "Investor" means a business entity that holds an investment in voting stock of another company.

(b) "Investee" means a corporation that issued voting stock held by an investor.

(c) "Corporate joint venture" is a company owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group.

(d) "Dividends", unless otherwise specified, means dividends paid or payable in cash, other assets, or another class of stock and does not include stock dividends or stock splits.

(e) "Earnings or losses of an investee" and "financial position of an investee" refer to net income (or net loss) and financial position of an investee determined in accordance with generally accepted accounting principles.

(f) "Undistributed earnings of an investee" means net income less dividends declared whether received or not.

(g) "Date of acquisition" is the date on which the investor assumes the rights of ownership. Ordinarily, this is the date assets are received and other assets are given or securities issued.

CLASS I AND CLASS II MOTOR
CARRIERS INSTRUCTIONS

1. Classification of Carriers.

(a) For purposes of accounting and reporting regulations, except those regulations pertaining to accounting and reporting for revenue and expense items, common and contract carriers of property subject to the Interstate Commerce Act are grouped into the following three classes:

Class 1: Carriers having average annual gross carrier operating revenues (including interstate and intrastate) of $3 million or more froin property motor carrier operations.

Class II: Carriers having average annual gross carrier operating revenues (including interstate and intrastate) of $500,000 but less than $3 million from property motor carrier operations.

Class III: Carriers having average annual gross carrier operating revenues

(including interstate and intrastate) of less than $500,000 from property motor carrier operations.

(b) Special provisions for carriers with revenues from general and special commodities and from household goods operations.

(1) Separate matrices of revenue and expenses are provided for carriers subject to Instructions 27 and 28A and for carriers subject to Instruction 28B for accounting and reporting purposes. For purposes of accounting and reporting, the revenues of common and contract motor carriers of property, shall be categorized as follows:

Instructions 27 and 28A (general and other special commodity).

Instruction 28B (household goods). Each category of revenue is then classified in accordance with the dollar revenue limits prescribed in paragraph (a). When a carrier has both household goods and general and other special commodity revenue, each category shall be classified (I, II or III) to determine the accounting and reporting regulations which pertain to that category.

(2) If a carrier grouped as class I or class II carrier in accordance with paragraph (a) has operations in both categories in paragraph (b) (1) above, and one of the categories is classified as class III, such revenues and expenses shall be accounted and reported in accordance with the regulations pertaining to the class I or class II category.

(3) If a carrier grouped as class II in accordance with paragraph (a) has operations in both categories and both categories are grouped as class III, such revenues and expenses shall be accounted and reported in accordance with the regulations pertaining to the category with the larger annual gross carrier operating revenues.

(4) The class to which any carrier belongs shall be determined by the average of its annual gross carrier operating revenues derived from motor carrier operations as a property carrier for the past three consecutive years.

(5) The class to which any category of carrier revenues and expenses belongs shall be determined by the average of its annual gross carrier operating revenues derived from that category of motor carrier operations (household goods operation and motor carrier operations other than household goods operations) for the past three consecutive years.

(6) If, at the end of any calendar year, the average of a carrier's annual gross carrier operating revenues from all motor carrier operations, from household goods operations, or from other than household goods operations, for the last three consecutive years is greater than the maximum or less than the minimum of the class in which the carrier, or the revenue category, has been previously grouped, it shall automatically be grouped in the higher or lower class in which it falls because of such increased or decreased average annual gross carrier operating revenues, and it shall notify the Commission of the change in its status. Any carrier which begins new operations (by obtaining operating authority not previously processed), extends its existing authority (by obtaining additional operating rights, or is regulated by a classification method not previously employed) will be classified in accordance with a reasonable estimate of its prospective annual gross operating revenues.

(c) Any carrier may, at its option, adopt the methods of a group higher than the one in which it falls on the basis of its average annual gross operating revenues. Notice of such action shall be promptly filed with the Commission. 2. Records.

(a) All of the accounts prescribed in this system of accounts shall be kept when applicable and entries recorded by the double entry method. Each account in the general or subsidiary ledgers.shall reflect the prescribed account number. Account titles shall clearly indicate the type of items included therein if the exact titles prescribed herein are not used. Where references are made in these instructions to dual account numbers such as 4530/6400, the first number refers to the revenue or expense account contained in the chart of accounts and matrix of operating expenses for general and special freight carriers (Instruction 27 and 28A carriers). The second number refers to the revenue or expense account in the matrix of operating revenues and expenses provided for carriers of household goods. (Instruction 28B carriers). Household goods carriers shall use a 9000 series numbering system for "other income and deduction" accounts.

(b) Each carrier shall keep its general accounting books, and all other books, records, and memoranda which support in any way the entries to such account

ing books, and analyses of general ledger account balances, readily accessible so that it can furnish at any time full information as to any account. Moreover, the month, day, year, and posting reference shall be shown for each entry in the general ledger and subsidiary records and the entries shall be supported with detailed information that will provide a ready analysis and verification of the facts recorded therein. All expenditures including the expense accounts of officers and employees shall be definitely supported by vouchers, payrolls, receipted bills, canceled checks, receipts for petty cash payments, or other evidences of the expenditures incurred.

(c) The books referred to herein include not only books of accounts in a limited technical sense but all other records such as minute books, stock books, reports, correspondence, memoranda, etc., which will be useful in developing the history of or facts regarding any transaction.

(d) Carriers shall not destroy any books, records, memoranda, etc., which support entries to their accounts unless the destruction thereof is specifically provided for in the regulations to govern the destruction of records of class I and class II motor carriers. (Part 1226 of this chapter.)

(e) Subdivisions of any account in this system of accounts may be kept, provided that such subdivisions do not impair the integrity of the accounts prescribed. The Commission reserves the right to order any carrier to subdivide any account in this system of accounts. The title of each such subdivision shall clearly indicate the account of which it is a part. Each subdivision of a prescribed account may be identified by a suffix to the prescribed account number. When an account is subdivided in the general ledger, an account need not be maintained for the total of the subdivisions. When such subdivisions are carried in subsidiary ledgers, however, the general ledger shall contain the controlling accounts therefor so that a complete general ledger trial balance may be obtained.

(f) Carriers classified as household goods carriers shall also comply with the following requirements.

(1) As evidence of the financial condition of agents required in § 1056.19 (b) of this chapter. Required Filings Relating to Agency Agreements, the author

ized carrier shall acquire from each of its agents (1) an income statement for the calendar year preceding the effective date of the agency agreement and (ii) a balance sheet as of the last day of said year. Annually thereafter, for each year an agency agreement is in effect the authorized carrier shall acquire the required statements and a detailed schedule of operating revenues and expenses, from each of its agents no later than the time for the filing of the authorized carrier's annual report with the Commission. The required financial statements shall be prepared in accordance with the prescribed schedules for such statements in the annual report form filed with the Commission by the authorized carrier.

(2) The agents' annual financial statements shall be retained by the authorized carrier in a separate file as part of its required records for a period of 3 years.

3. Accounting period.

(a) Each carrier shall keep its books on the basis of either (1) an accounting year of 12 months ending on the 31st day of December in each year, or (2) an accounting year of thirteen 4-week periods ending at the close of one of the last 7 days of each calendar year.

(b) A carrier electing to adopt an accounting year of thirteen 4-week periods shall file with the Commission a statement showing the day on which its accounting year will close. A subsequent change in the accounting period may not be made except by authority of the Commission.

(c) To avoid repetition, wherever "calendar year" appears in this system of accounts it is intended to include "or an accounting year of thirteen 4-week periods" and wherever "month" appears it is intended to include "or 4-week period."

(d) For each month all transactions applicable thereto, as nearly as can be ascertained (see instruction 9), including full accruals, shall be entered in the books of original entry (cash book, purchase journal, etc.), and posted to the general ledger. A trial balance of the general ledger accounts shall be prepared at the close of each month setting out the account number, title, and amount of each ledger account. (Mechanical, electronic or automatic data processing

printout documentation producing the equivalent of manually prepared trial balances shall identify balances by account numbers.) At the end of the calendar year, the revenue, expense, and other income accounts shall be closed into retained earnings or the noncorporate capital accounts; and the balance sheet account balances shall be brought forward to the general ledger for the succeeding year.

(e) The final entries for any month shall be made in the general ledger not later than 60 days after the last day of the month for which the accounts are stated, unless otherwise authorized by the Commission, except that the period within which the final entries for the last month of the calendar year shall be made may be extended to such date in March of the following year as shall not interfere with the preparation and filing of annual reports.

(f) No changes shall be made in the accounts for periods covered by quarterly and annual reports that have been filed with the Commission unless the changes have first been authorized by the Commission.

4. Charges to be just and reasonable.

All charges to the accounts prescribed in this system of accounts for carrier property, operating revenues, operation and maintenance expenses, and for other carrier expenses, shall be just, reasonable, and not exceed amounts necessary to the honest and efficient operation and management of the motor carrier business. Payments for expenses related to noncarrier activities, shall be included in Account Series 8400/9400-Other Nonoperating Income (Net) (class II), and Account 8420/9420-Other Nonoperating Deductions (class I).

5. Interpretations of prescribed accounting.

(a) The cross-references included in, and notes following, the texts of various instructions and accounts are for the purpose of indicating the applicable provisions of other sections. Such references are not to be construed as comprising a complete list of the instructions relating to a particular subject, since the definitions, the general instructions, and the texts of each account must be given consideration in determining the prescribed accounting.

(b) All questions of doubtful interpretation of the prescribed accounting shall be submitted by responsible accounting officials of the carrier to the Commission for consideration and decision.

(c) In the absence of specific instructions by the Commission relating to accounting matters, carriers shall be guided by sound accounting principles. 6. Item lists.

Lists of items appearing in the texts of the several accounts are given for the purpose of indicating the application of the prescribed accounting in specific cases. The lists are not to be considered as comprising all items includible in the accounts, but merely as representative of them. On the other hand, the appearance of an item in a list warrants the inclusion of such item in the account concerned only when the text of the account also indicates inclusion, inasmuch as the same item frequently appears in more than one list. The proper entry in each instance must be determined by the texts of the accounts.

7. Opening entries.

As of the date that this system of accounts is adopted by the carrier, the accounts prescribed herein shall be opened by appropriately transferring thereto the balances carried in the accounts previously maintained. The carrier is authorized to make such subdivisions, reclassifications, consolidations of, or additions to such balances as are necessary to meet the requirements of this system of accounts.

8. Extraordinary and prior period items.

(a) (1) All items of profit and loss recognized during the year are includible in ordinary income except nonrecurring items which in the aggregate for the same class are material in relation to operating revenues and ordinary income for the year and are clearly not identified with or do not result from the usual business operations of the year. Important items of the kind which occur from time to time and which, when material in amount, are to be excluded from ordinary income, are those resulting from unusual sales of property and investment securities other than temporary cash investments; from wars, earthquakes, and similar calamities and temporary cash investments; from wars, earthquakes, and similar calamities and catastrophes, which are not a recurrent