§ 31.01-1

81.8

RETIREMENT UNITS

List of retirement units.

Appendix A: Interpretations of the Accounting Requirements Contained in this System of Accounts.

Appendix B: Standard Practices for the Establishment and Maintenance of Continuing Property Records by Telephone Companies Having Investment in Account 100:1, "Telephone Plant in Service," in Excess of $8,000,000.

AUTHORITY: The provisions of this Part 31 issued under sec. 4, 48 Stat. 1066, as amended; 47 U.S.C. 154. Interpret or apply secs. 219, 220, 48 Stat. 1077 as amended, 1078; 47 U.S.C. 219, 220.

SOURCE: The provisions of this Part 31 appear at 28 F.R. 13039, Dec. 5, 1963, except as otherwise noted.

NOTE: Explanation of numbering in this part.

The several section numbers indicate the relationship among the instructions and accounts of Part 31, as follows:

Examples:

(1) Sec. 31.01-1

(2) Sec. 31.1-10 (3) Sec. 31.100:1 (4) Sec. 31.201 EXPLANATION:

The number "31" (appearing to the left of the decimal point) indicates the part number.

The dash "-" indicates an instruction that is applicable to several accounts. See examples (1) and (2).

With the exception of the instructions that are applicable to more than one group of accounts (which are indicated by a zero following the decimal point), the number between the decimal point and the dash indicates the group of accounts to which the instruction is applicable. A mnemonic method of indication is used consisting of the first digit of the first account in the group. Thus, in the foregoing examples:

Sec. 31.01-1 refers to several groups of accounts;

Sec. 31.1-10 refers to the balance-sheet accounts (beginning with account 100).

When no dash appears in the section number, the number to the right of the decimal point is an account number. See examples (3) and (4).

Cross references to accounts are made by citing the account numbers, e. g., account 323 instead of the corresponding section number (§ 31.323).

GENERAL INSTRUCTIONS

Classification of companies.

(a) For accounting purposes, telephone companies are divided into four classes as follows:

Class A. Companies having annual operating revenues exceeding $250,000.

Class B. Companies having annual operating revenues exceeding $100,000 but not more than $250,000.

Class C. Companies having annual operating revenues exceeding $50,000 but not more than $100,000.

Class D. Companies having annual operating revenues not exceeding $50,000.

(b) Class A companies shall keep all the accounts of this system of accounts, which are applicable to their affairs.

(c) Class B companies shall keep all the accounts of this system of accounts, which are applicable to their affairs, except that their accounts for operating revenues and operating expenses may be kept under the accounts of the condensed classification provided for herein. (See §§ 31.5-53 and 31.6-65.)

(d) Class C companies shall keep all the accounts prescribed by Part 33 of this chapter which are applicable to their affairs.

(e) It is recommended but not required that Class D companies keep the accounts prescribed in Part 33 of this chapter.

(f) Companies that desire more detailed accounting may adopt the accounts prescribed for a higher classification of telephone companies: Provided, That the Commission is notified promptly of such action. Such companies are not required to comply with the more detailed reporting requirements contained in the rules respecting such higher classification.

(g) The initial classification of a company shall be determined by its lowest annual operating revenues for the three immediately preceding years. Subsequent changes in classification shall be made when the annual operating revenues show a greater or lesser classification for three consecutive years. Companies becoming subject to the jurisdiction of the Commission and not having revenue data for the three immediately preceding years shall estimate the amount of their annual revenues and adopt the scheme of accounts appropriate for the amount of such estimated revenues.

(a) The company's records shall be kept with sufficient particularity to show fully the facts pertaining to all entries in these accounts. Where the full information is not recorded in the general books the entries therein shall be supported by other records in which the full details shall be shown and the general book entries shall contain sufficient reference to the detail records to permit ready identification. The detail records shall be filed in such manner as to be readily accessible for examination by representatives of this Commission.

(b) Attention is directed to the following extract from section 220 of the Communications Act of 1934 (48 Stat. 1078; 47 U. S. C. 220):

(e) Any person who shall willfully make any false entry in the accounts of any book of accounts or in any record or memoranda kept by any such carrier, or who shall willfully destroy, mutilate, alter, or by any other means or device falsify any such account, record, or memoranda, or who shall willfully neglect or fail to make full, true, and correct entries in such accounts, records, or memoranda of all facts and transactions appertaining to the business of the carrier, shall be deemed guilty of a misdemeanor, and shall be subject, upon conviction, to a fine of not less than $1,000 nor more than $5,000 or imprisonment for a term of not less than one year nor more than three years, or both such ine and imprisonment: Provided, That the Commission may in its discretion issue orders specifying such operating, accounting, or anancial papers, records, books, blanks, or documents which may, after a reasonable time, be destroyed, and prescribing the length of time such books, papers, or documents shall be preserved.

CROSS REFERENCE: For regulations governing the periods for which records are to be retained, see the pertinent part of this chapter which relates to preservation of records.

(e) All charges to the accounts prescribed in this system of accounts for telephone plant, income, operating revenues, and operating expenses shall be Just and reasonable and any payments by the company in excess of such just and reasonable charges shall be included in account 323, "Miscellaneous income charges."

(d) Accounts which are clearly summaries of other accounts or subaccounts provided for herein are not required to be kept in the company's books. All

accounts kept shall conform in numbers and titles to those prescribed herein, except that:

(1) Companies may subdivide any of the accounts, provided such subdivisions do not impair the integrity of the accounts prescribed. The titles of all such subdivisions or subaccounts shall refer by number or title to the accounts of which they are subdivisions, and this Commission shall be notified of the nature and purpose of such subdivisions. When subaccounts are thus kept, it is not required that the main accounts of which they are subdivisions shall also be kept in the company's books.

(2) Clearing accounts, in addition to those prescribed herein, may be kept when necessary in making the proper distribution of items to the appropriate primary accounts: Provided, That within 30 days of the opening of such accounts, this Commission shall be notified of the nature and purpose thereof.

(3) Temporary or experimental accounts may be kept in addition to the accounts prescribed herein, for the purpose of developing the efficiency of operations, etc.: Provided, Such accounts do not impair the integrity of any accounts prescribed herein: And provided further, That within 30 days of the opening of such accounts, this Commission shall be notified of the nature and purpose thereof.

(e) As of the date a company becomes subject to this system of accounts, the several accounts prescribed herein shall be opened by transferring thereto the balances carried in the accounts previously maintained by the company. Copies of the journal entries recorded to effect these transfers shall be filed with this Commission. The company is authorized to make such subdivisions, reclassifications, or consolidations of such balances as are necessary to meet the requirements of this system of accounts.

(f) Nothing contained in this part shall prohibit or excuse any carrier or receiver or operating trustee of any carrier from subdividing the accounts hereby prescribed in the manner ordered by any State commission having jurisdiction or to the extent necessary to secure the information required in the prescribed reports to such commission.

When used in this system of accounts: (a) "Accounts" or "these accounts" means the accounts of this system of accounts.

(b) "Actually issued," as applied to securities issued or assumed by the company, means those which have been sold to bona fide purchasers for a valuable consideration (including those issued in exchange for other securities or other property) under the condition that the purchasers secured them free from all control by the issuing company, also securities issued as dividends on stock.

(c) “Actually outstanding,” as applied to securities, means those which have been actually issued and are neither retired nor held by or for the company.

(d) "Affiliated companies" means companies that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, the accounting company.

(e) "Book amount," as applied to capital stock, means the par value of stock having a par value, and the amount duly authorized for inclusion in account 150, "Capital stock," for stock having no par value.

(f) "Book cost" means the amount at which property is recorded in these accounts, without deduction of related reserves.

(g) "Book liability" means the amount at which securities issued or assumed by the company and other liability items are recorded in these accounts.

(h) "Company" or "the company," when not otherwise indicated in the context, means the accounting company.

(i) "Control" (including the terms "controlling," "controlled by," and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a company, whether such power is exercised through one or more intermediary companies, or alone, or in conjunction with, or pursuant to an agreement with, one or more other companies, and whether such power is established through a majority or minority ownership or voting of securities, common directors, officers, or stockholders, voting trusts, holding trusts, affiliated companies, contract, or any other direct or indirect means.

(j) "Cost," except as applied to telephone plant, franchises, and patent rights, means the amount of money

actually paid (or the current money value of any consideration other than money exchanged) for property or services. (Note also paragraph (x) of this

section.)

(k) "Cost of removal" means the cost of demolishing, dismantling, removing, tearing down, or otherwise disposing of telephone plant and recovering the salvage, including the cost of transportation and handling incident thereto.

(1) "Debt expense" means all expenses in connection with the issuance and sale of evidences of debt, such as fees for drafting mortgages and trust deeds; fees and taxes for issuing or recording evidences of debt; cost of engraving and printing bonds, certificates of indebtedness, and other commercial paper; fees paid trustees; specific costs of obtaining governmental authority; fees for legal services; fees and commissions paid underwriters, brokers, and salesmen; fees and expenses of listing on exchanges, and other like costs. (Note also § 31.1-13 (b).)

(m) "Depreciation," as applied to depreciable telephone plant, means the loss in service value not restored by current maintenance, incurred in connection with the consumption or prospective retirement of telephone plant in the course of service from causes which are known to be in current operation, against which the company is not protected by insurance, and the effect of which can be forecast with a reasonable approach to accuracy. Among the causes to be given consideration are wear and tear, decay, action of the elements, inadequacy, obsolescence, changes in the art, changes in demand and requirements of public authorities.

(n) "Discount," as applied to securi ties issued or assumed by the company means the excess of the book or face amount of the securities plus interest or dividends accrued at the date of the sale over the current money value of the consideration received at their sale

(o) "Face amount" means the amoun or value of bonds, mortgages, and othe evidences of debt set forth in the docu ments themselves.

(p) "Group plan," as applied to de preciation accounting, means the pla under which depreciation charges are ac crued upon the basis of the original cos of all property included in each depre ciable plant account, using the averag service life thereof properly weighte and upon the retirement of any depre

ciable property its full service value is charged to the depreciation reserve whether or not the particular item has attained the average service life.

(q) "Investment advances" means advances, represented by notes or by book accounts only, with respect to which it is mutually agreed or intended between the creditor and the debtor that they shall be settled by the issuance of capital stock or funded debt or shall not be subject to current cash settlement.

(r) "Minor items," as applied to depreciable telephone plant, means any part or element of such plant, other than station apparatus and station connections, which is not designated as a retirement unit in § 31.8.

(s) "Miscellaneous physical property" means all physical property owned by the company, other than telephone property the investment in which is includible in accounts 100:1, "Telephone plant in service," 100:2, "Telephone plant under construction," 100:3, "Property held for future telephone use," and 100:4, "Telephone plant acquisition adjustment."

(t) "Net salvage value" means the salvage value of the property retired after deducting the cost of removal.

(u) "Nominally issued," as applied to securities, means those which have been signed, certified, or otherwise executed and placed with the proper officer for sale, or pledged or otherwise placed in some special fund of the company, but which have not been sold.

(v) "Nominally outstanding," as applied to securities, means those which after being actually issued have been reacquired by or for the company under such circumstances as require them to be considered as held alive and not retired.

(w) "Nonaffiliated companies" means all companies other than those defined as affiliated in paragraph (d) of this section.

(x) "Original cost" or "cost," as applied to telephone plant, franchises, and patent rights, means the actual money cost of (or the current money value of any consideration other than money exchanged for) property at the time when It was first dedicated to the public use. whether by the accounting company or by predecessors.

NOTE: For the application of this definition to property acquired from predecessors see 1 312-21. (Note also paragraph (1) of this section.)

51-095-668

(y) "Plant retired" means plant which has been removed, sold, abandoned, destroyed, or otherwise withdrawn from telephone service.

(z) "Premium," as applied to securities issued or assumed by the company means the excess of the current money value of the consideration received at their sale over the sum of their book or face amount and interest or dividends accrued at the date of the sale.

(aa) "Replacing" and "replacement," when not otherwise indicated in the context, mean the construction or installation of telephone 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," or other appropriate account.

(cc) "Service life" means the period between the time of installation of telephone plant and the time of its retirement.

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

(1) The net salvage value as defined in paragraph (t) of this section as specially modified in § 31.02-80 (c) for station apparatus and station connections.

(2) The net salvage value as defined in 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 or sale 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 (d), (e), and (f).)

(ff) "Straight-line method," as applied to depreciation accounting, means the plan under which the service value of property is charged to operating expenses and to clearing accounts and credited to the depreciation reserve through