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plant in place of plant retired, together with the removal and recovery of the plant retired.

(bb) "Salvage value" means the amount received for property retired, if sold, or if retained for reuse, the amount at which the material recovered is chargeable to Account 122, "Material and supplies."

(cc) "Service life" means the period between the time of installation (note paragraph (ii) of this section) of telephone plant and the time of its retirement.

(dd) "Service value" means the difference between the original cost and:

(1) The salvage value (note paragraph (bb) of this section) for station apparatus.

(2) The net salvage value (note paragraph (t) of this section) for other telephone plant.

(ee) "Stock expense," as applied to capital stock, means all expenses in connection with the issuance, sale, or resale of capital stock, such as fees and commissions (including the cash value of securities) paid to promoters, underwriters, brokers, and salesmen; fees for legal services; cost of soliciting subscriptions for capital stock, including fees, commissions, and advertising; cost of obtaining governmental authority and filing notices thereunder; fees and taxes for issuance of capital stock and listing on exchanges; cost of preparing, engraving, printing, issuing, and distributing prospectuses and stock certificates in connection with both original and additional capital stock issues. (Note also § 31.1-13 (b).)

(ff) "Straight-line method," as applied to depreciation accounting, means the plan under which the service value (note paragraph (dd) of this section) of property is charged to operating expenses and to clearing accounts and credited to the depreciation reserve through equal annual charges as nearly as may be during its service life.

(gg) "Telephone operations" and "telephone service" mean the service by common carriers of transmitting intelligence by wire or wireless primarily through the use of telephones, and services incidental or auxiliary to such service, such as private line, teletypewriter, telegraph, and telephotograph services.

(hh) "Telephone plant" means physical property used in telephone service.

(ii) "Time of installation" means the date at which telephone plant is placed in telephone service.

jj) "Time of retirement" means the date at which telephone plant is retired from telephone service.*†

31.01-4 Unaudited items. When the amount of any known item affecting these accounts cannot be accurately determined in time for inclusion in the accounts of the calendar year in which the transaction occurs, the amount of the item shall be estimated and included in the proper accounts. When the item is audited, the necessary adjustments shall be made through the accounts in which the estimate was recorded. If during the interval between the date of inclusion of the item in the accounts and the date on which it is audited,

**For statutory and source citations, see note to § 31.01-1.

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a substantial difference from the initial estimate is determined, appropriate adjustments shall be made in the current accounts to cover such difference. The company is not required to anticipate minor items which would not appreciably affect these accounts.*t

31.01-5 Delayed items. (a) The term "delayed items" means items relating to transactions which occurred before the current calendar year. It includes adjustments of errors in the income, operating revenue, and operating expense accounts of prior years.

(b) If the amount of any delayed item is relatively so large that its inclusion in the accounts for a single year would seriously distort those accounts, the company shall distribute to surplus so much of the amount as affects the operations of prior years. The company shall file with this Commission the full particulars concerning each such item, including the accounts and years which would have been affected had the item not been delayed.*+

31.01-6 Spreading of income, revenue, and expense items. When the amount of any unusual item includible in an income, operating revenue, or operating expense account for a single month is relatively so large that its inclusion in the accounts for that month would seriously distort those accounts, it may be included in Account 139, "Other deferred charges," or Account 174, "Other deferred credits," as appropriate, and distributed in equal amounts to the accounts for the current and remaining months of the calendar year.*t

31.01-7 Profits and losses from foreign exchange. (a) Profits and losses from premiums and discounts on foreign exchange shall be included, so far as practicable, in the accounts appropriate for the transactions in connection with which such items arise. For example, profits realized and losses suffered due to the difference in rates of exchange between the date that money is borrowed or loaned and the date of payment or collection shall be included in Account 402, "Miscellaneous credits to surplus," or Account 413, "Miscellaneous debits to surplus," as may be appropriate.

(b) Minor amounts of profits and losses on foreign exchange arising in the course of the company's telephone operations and impracticable of allocation to each specific transaction involved shall be included in Account 526, "Other operating revenues," or Account 675, "Other expenses," as may be appropriate.*t

31.01-8 Interpretation of item lists. Lists of "items" appearing in the texts of the several accounts are given for the purpose of clearly indicating the application of the prescribed accounting in specific cases. The lists are not to be considered as comprising all the items includible in the several 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.*†

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*For statutory and source citations, see note to § 31.01–1.

31.01-9 Submission of questions. To the end that uniformity of accounting may be maintained, the company shall submit all questions of doubtful interpretation of the prescribed accounting to this Commission for consideration and decision.*†

INSTRUCTIONS FOR DEPRECIATION ACCOUNTING

31.02-80 Computation of depreciation rates. (a) Depreciation charges shall be computed by applying the composite annual percentage rates considered applicable to the original cost (note § 31.01-3 (x)) of each class of depreciable telephone plant owned or used by the company. (Note also § 31.02-81 (b).) These percentage rates shall be based upon the estimated service values and service lives (note § 31.01-3 (cc), (dd)) developed by a study of the company's history and experience and such engineering and other information as may be available with respect to prospective future conditions. These percentage rates shall be computed in conformity with the group plan (note § 31.01-3 (p)) of accounting for depreciation and shall be such that the loss in service value of the property, except for losses excluded under the definition of depreciation (note § 31.01-3 (m)), may be distributed under the straight-line method (note § 31.01-3 (ff)) during the service life of the property. Such percentage rates shall not include any allowance for loss in service value of property expected to be installed in the future. The percentage rates shall, for each primary account comprised of more than one class of property, produce a charge to operating expenses for that account equal to the sum of the amounts that would otherwise be chargeable for each of the various classes of property included in the account.

(b) In the event any composite percentage rate becomes no longer applicable, revised composite percentage rates shall be computed in accordance with paragraph (a) of this section.

(c) The company shall keep such records of property and property retirements as will reflect the service life of property which has been retired, or will permit the determination of service-life indications. by mortality, turnover, or other appropriate methods, and also such records as will reflect the percentage of salvage value, or net salvage value, as appropriate, for property retired from each class of depreciable telephone plant.*

31.02-81 Depreciation charges. (a) Charges for currently accruing depreciation shall be made monthly to Account 608, "Depreciation," and to clearing accounts, as appropriate, and corresponding credits shall be made to Account 171, "Depreciation reserve." In computing the current monthly charges, one-twelfth of the composite annual percentage rate applicable to the primary accounts covering depreciable telephone plant shall be applied to the average of the balances, as of the first and last of the current month, in each such primary account.

(b) When the company is responsible under the terms of a lease for depreciation of property, used but not owned, for which the rent is chargeable to Account 303, "Rent for lease of operating property,"

**For statutory and source citations, see note to § 31.01-1.

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depreciation charges shall be made on the same basis as for owned depreciable property.

(c) A separate composite annual percentage rate for each account covering depreciable telephone plant shall be used in computing depreciation charges. Such composite rates shall be computed in accordance with § 31.02-80.*†

31.02-82 Classes of depreciable telephone plant. The classes of depreciable telephone plant and the accounts covering such plant are as follows:

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Right of way (Account 207).

Buildings (Account 212).

Central office equipment (Account 221).

Station apparatus (Account 231).

Private branch exchanges (Account 234).

Booths and special fittings (Account 235).

Pole lines (Account 241).

Aerial cable (Account 242:1).

Underground cable (Account 242:2).

Buried cable (Account 242:3).

Submarine cable (Account 242:4).

Aerial wire (Account 243).

Underground conduit (Account 244).

Furniture and office equipment (Account 261).

Vehicles and other work equipment (Account 264).

NOTE: When depreciable plant carried in Account 276. "Telephone plant acquired," is distributed to the appropriate plant accounts, adjusting entries shall be made covering the depreciation charges applicable to such plant for the period during which it was carried in Account 276.

31.02-83 Plant retired for causes not factors in depreciation. The service value of depreciable telephone plant retired (note also § 31.2-25) shall be charged in its entirety to Account 171, "Depreciation reserve." If the cause of retirement is not a recognized factor in depreciation (note § 31.01-3 (m)) and the loss is not covered by insurance, the company may, upon proof that the charge to the depreciation reserve will result in undue depletion thereof, and with the approval of this Commission, credit Account 171, "Depreciation reserve," and charge Account 138, "Extraordinary maintenance and retirements," with the unprovided-for loss in service value and distribute it from that account to Account 609, "Extraordinary retirements," over such period as this Commission may approve.**

INSTRUCTIONS FOR BALANCE-SHEET ACCOUNTS

31.1-10 Purpose of balance-sheet accounts. The balance-sheet accounts (100:1 to 181, inclusive) are designed to show the assets, liabilities, capital stock, and surplus or deficit of the company.* .*†

31.1-11 Current assets. (a) In the group of accounts designated as current assets (Accounts 113-123, inclusive) there shall not be included any item the book cost of which is not reasonably assured, except that items of current character but of doubtful value may be written down and for record purposes carried in these accounts at a nominal amount. If not thus written down, they shall be included in Account 139, "Other deferred charges," at book cost or nominal

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**For statutory and source citations, see note to § 31.01-1

amount, or written off, as may be appropriate; but they shall not be so included at book cost unless there is a reasonable prospect of future substantial value.

(b) The amount of any item written off shall be included in Account 530, "Uncollectible operating revenues-Dr.," Account 323, "Miscellaneous income charges," Account 413, "Miscellaneous debits to surplus," or other appropriate account.*†

31.1-12 Book cost of securities owned. (a) Securities issued by others shall be recorded in these accounts at the time of purchase at the current money value of the consideration given therefor by the company. (Note also paragraph (d) of Account 313 and paragraph (b) of Account 314.)

(b) The company is allowed the option of writing down such book cost in recognition of decline in the value of the securities. It shall write down to a nominal amount or write off if there is no reasonable prospect of future substantial value. The amount of such adjustment shall be debited to Account 413, "Miscellaneous debits to surplus." The company shall maintain a complete record of the facts on which it bases such adjustment.*†

31.1-13 Company securities owned. (a) The book or face amount (note § 31.01-3 (e), (o)) of nominally issued (note § 31.013 (u)) and nominally outstanding (note § 31.01-3 (v)) stocks and other securities issued or assumed by the company shall be shown in the short columns only of the balance-sheet statement of the company to this Commission. (Note also § 31.1-16:1.)

(b) The necessary adjustments for the difference between the face or book amount of securities reacquired and the amounts actually paid for them together with expenses incurred in connection with their reacquisition shall be included, when a debit, in Account 413, "Miscellaneous debits to surplus," and when a credit, in Account 402, "Miscellaneous credits to surplus." *†

NOTE: The book amount for nonpar stock reacquired shall be obtained by first ascertaining the amount in Account 150, "Capital stock," for the particular class of stock before the reacquirement. In this amount shall be included the proceeds realized at the sale, the amount of any assessments against stockholders, the amounts transferred to Account 150 from surplus, less any amount which has been distributed from Account 150 to the stockholders in liquidation. The amount thus ascertained shall be prorated to the shares reacquired on the basis of the proportion that the reacquired shares bear to the total number of shares actually outstanding immediately prior to their reacquirement. (Note also Accounts 104, 105, 136, and 137.)

31.1-14 Discount and premium on capital stock. (a) A separate discount and premium account shall be maintained to include both discounts suffered and premiums realized at the time of sale or resale of each class and series of capital stock having a par value. (Note § 31.01-3 (n), (z).)

(b) In stating the balance-sheet, the total of debit balances in these accounts having debit balances shall be reported under Account 134: 1, "Discount on capital stock," and the total of credit balances in these accounts having credit balances shall be reported under Account 152, "Premium on capital stock." Accounts with debit balances shall not be offset by accounts with credit balances.

**For statutory and source citations, see note to § 31.01-1.

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