INSTRUCTIONS FOR CLEARING ACCOUNTS 4-1 Items to be charged. In recognition of the fact that certain expenditures incident to the construction and the operation of property are not chargeable directly to any particular property investment or expense account, clearing accounts have been provided for the purpose of securing an equitable distribution of such items to the proper primary accounts, as hereinafter set forth. 4-2 Material and stationery store expenses. (a) To clearing accounts called "Material store expenses" and "Stationery store expenses" shall be charged expenses in connection with purchasing, handling and storing material and stationery in and distributing it from the company's storehouses, including the pay of officers and employees in the purchasing and store departments and their traveling, office, and other expenses; also expenses, including wages, fuel, and supplies, of operating switching locomotives when exclusively assigned to the service of switching at material storehouses. (Expenses of incidental switching at material yards by locomotives in regular switching service shall be charged to the appropriate transportation accounts.) The pay and expenses of men employed in purchasing or inspecting a single class of material, such as ties, shall be added as store expenses to the cost of that particular material. (b) The total amount of storehouse expenses charged to these accounts shall be so distributed among the accounts to which material and stationery has been charged that the amounts thus distributed will be, for each account, in proportion to the value of the items issued chargeable thereto, except that the amount representing the purchasing department expenses shall be apportioned on the value of the items issued which were purchased by that department. To avoid monthly fluctuations in the ratio of store expenses to the value of material and stationery purchased or issued, carriers may make a monthly apportionment on the basis of fair percentage rates, provided the store expense accounts are adjusted and closed out at the end of each year. 4-3 Shop expenses. (a) A clearing account entitled "Shop expenses" shall be kept to which shall be charged items of expense at shops, enginehouses, repair tracks, and other places at which me 27 chanical work is done, not assignable directly to specific accounts. Such expenses shall be apportioned among the various accounts affected. The basis of distribution shall be the relative proportion which the total amount of charges to "Shop expenses" bears to the total of the directly distributed labor. To avoid monthly fluctuations in the ratio of shop expenses to the total of distributed labor, carriers are permitted to make the monthly apportionment on the basis of a percentage of the distributed labor, provided the shop expense account is adjusted and closed out at the end of the year. (b) The expenses assignable to this account shall include the pay of foremen (who exercise supervision over all departments), their clerks, and other employees engaged in general work in and about shops, cost of heat, light and power; cost of small tools and supplies and water and power purchased; also cost of removal of snow and ice from transfer tables and shop yards, and other incidental shop expenses. To this account shall be charged expenses, including wages, fuel and supplies, of operating switching locomotives when exclusively assigned to switching service at shops (the expenses of incidental switching at shops by locomotives in transportation switching service shall be charged to appropriate transportation accounts). 4-4 Gravel and sand pits and quarries. (a) When a gravel or sand pit or quarry is opened for operations likely to extend over a long period, an account shall be set up designated, "Operations of gravel pit at or "Operations of quarry at ," as the case may be. To this account shall be charged cost of the land in excess of its estimated value after the gravel, sand, or stone has been removed (credit to the property account in which the cost of the land is included); payments for right to enter upon and remove ballast from land not owned by the carrier; cost of sinking test holes; and costs preparatory to opening the pit or quarry. To this account shall be charged also the cost, in excess of the estimated salvage value, of rails and fastenings, ties, other material and labor used in constructing tracks to and in the gravel pit or quarry (the estimated salvage being carried in an appropriate suspense account); cost of labor and train service employed in producing, quarrying, and loading ballast, including the cost of operation, repairs, and depreciation of power shovels and other machines and machinery; pay and expenses of watchmen; cost of explosives and hand tools, and miscellaneous expenses; and cost of installing, operating and maintaining signals and interlockers at gravel pits. (b) Credit to the clearing account shall be made each month to cover the cost of ballast material produced during the month. The cost of production shall include the expenses directly assignable to the monthly output plus a proportion of the expenses not directly assignable, such as cost of land, tracks, machinery, and interlockers. This latter amount shall be computed upon the basis of the ratio which the monthly output bears to the total estimated yardage to be taken from the pit. When any portion of the product of such pits or quarries is sold, the cost thereof shall be credited to this clearing account and the profit thereon, if any, shall be credited to revenue account 143, Miscellaneous. 4-5 Power plant operations. (a) The accounting for the expenses of maintaining and operating an electric, steam, or other power plant (both building and machinery) shall be determined by the purpose for which the power produced is used. When a power plant is intended and used for producing power solely for the carrier's own operations and the cost of operating the plant is chargeable to clearing account "Shop expenses," or to any one specific account for operating expenses, the expenses of maintenance shall be charged to the appropriate maintenance accounts, and the cost of operation to the account appropriate according to the use of the power. (b) When the power from such a plant is properly chargeable to more than one account, the expenses of maintaining and operating the plant shall be included in clearing account designated "Power plant operations." The expense of maintenance shall be cleared from that account to the appropriate maintenance accounts. The expenses of operation shall be apportioned to the appropriate accounts upon the basis of quantity of power used for the various purposes. (c) When a part of the power produced by a power plant is sold and the remainder is used in the carrier's own operations, the cost of maintaining and operating the plant shall be charged to a clearing account. The expense of maintenance shall be cleared from that ac count to the appropriate maintenance accounts. The proportion of the expenses of operation assignable to the power sold, on the basis of ratio of quantity of power sold to total quantity of power produced, shall be credited to this clearing account and charged to account 445, "Producing power sold". The remainder of the cost of operation shall be distributed to the appropriate expense accounts for the carrier's own operations. (d) When power plants are intended and used solely for furnishing power to others, the investment therein shall be included in balance sheet account 737, "Miscellaneous physical property", and the revenues and operating expenses shall be included in the accounts provided for operations of such property. (e) The accounting for the maintenance of transmission systems and distribution systems shall be in accordance with instructions pertaining to power plant operations. INSTRUCTIONS FOR DEPRECIATION ACCOUNTS be 5-1 Method. (a) There shall charged monthly to operating expenses or other appropriate accounts and credited to account 735, "Accrued depreciation-Road and equipment", during the service life of depreciable road and equipment property, includible in accounts classed as depreciable, amounts which will approximate the loss in service value not restored by current repairs or covered by insurance. The charges for accruing depreciation currently shall be computed in conformity with the group plan by applying to the cost of property such percentage rates as will distribute the service value by the straight-line method in equal annual charges to operating expenses or other accounts during the estimated life of the property. For road property, the cost shall be original cost or estimated original cost, as used in the valuation records, adjusted to current date. If a carrier submits proof that the actual cost of depreciable property is substantially different from cost figures in the valuation records, the carrier may, with the approval of the Commission, use such cost figures as the depreciation base. (b) The term group plan means the plan under which depreciation charges are accrued upon the basis of the cost of depreciable property includible in ac 26. Communication systems. 27. Signals and interlockers. 29. Power plants. 31. Power-transmission systems. 37. Roadway machines. 39. Public improvements-construction. 44. Shop machinery. 45. Power-plant machinery. NOTE: With respect to accounts 22, 3, 5, and 39, carriers may confine the accruals to the depreciable property recorded therein by applying the percentage rates to the aggregate cost of such property (omitting nondepreciable property), in computing depreciation charges, or they may request composite percentage rates to be applied to the total amount recorded in each of the accounts in computing depreciation charges. Equipment accounts: 53. Freight-train cars. 54. Passenger-train cars. 56. Floating equipment. 57. Work equipment. 58. Miscellaneous equipment. (d) When abandonment of a branch line or other important segment of the track structure or other part of the plant for which depreciation charges are not includible in the accounts is foreseeable within a reasonable period of time due to exhaustion of traffic, obsolescence or other causes, application may be made to the Commission for authority to create a suitable reserve in anticipation of probable loss. 5-2 Rates of depreciation. (a) A separate composite annual percentage rate for each account covering depreciable property shall be used in computing depreciation charges. Such composite rates shall be those which are from time to time prescribed or otherwise authorized by the Commission. Where property is acquired for which no rates have been prescribed or otherwise authorized and also in the event annual percentage rates prescribed for any class or type of property become no longer currently applicable because of material changes in property, premature obsolescence, exhaustion of traffic or other causes not given effect in the existing rates, carriers shall so inform the Commission promptly and, at that time, shall submit revised annual percentage rates and supporting details developed in accordance with the method indicated in instruction 5-1. (b) In computing monthly charges the annual percentage rates shall be applied to the depreciation base as of the first of each month and the result divided by twelve. 5-3 Depreciation records to be kept. (a) The carrier shall maintain for each class of property in convenient and accessible form engineering and other data bearing on prospective service lives; and shall be prepared at any time upon direction of this Commission to compute and submit for approval, new percentage rates to take the place of those based on service lives or value of salvage deemed to be inaccurate. (b) The carrier also shall keep such records of depreciable property and property retirements as will reflect the service life of each class of property which has been retired, or will permit the determination of service life indications by past experience of useful life tenure of comparable property, turnover, or other appropriate methods; also such records as will reflect the percentage of value of the salvage for property retired from each class of depreciable property. (c) For purposes of analysis the carrier shall maintain subsidiary records in which the reserve is broken down into component parts corresponding to each primary account showing in these records in complete detail by each primary account the current credits and debits to the reserve. Such detailed information shall be reported annually to this Com mission. For balance sheet purposes, the depreciation reserve shall be treated as a single composite reserve for property. 5-4 Leased property-depreciation. (a) The carrier shall include in operating expenses charges for depreciation on road property and equipment used but not owned, the rent for which is includible in rent for leased roads and equipment, and shall maintain the same records of service lives, salvage values, etc., as provided for owned road property and equipment. The excess of the total compensation paid over the amount chargeable for depreciation shall be included in the rent account. If settlement between the carrier and the lessor is not currently made, the amount of the depreciation accrued during the period of the lease shall be credited by the carrier to account 785, "Accrued depreciation— Leased property". The necessary adjustments of the difference between the balance thus accrued in that account and the actual amount of settlement shall be made appropriately through accounts 519 "Miscellaneous income", or 551 "Miscellaneous income charges", at the time settlement for depreciation on the property is made with the lessor. (b) The carrier shall not include in the depreciation account in operating expenses any charges for depreciation of equipment used but not owned when the rents therefor are included in the rent for equipment and joint facility rent accounts. 5-5 Jointly used property-depreciation. The owning carrier shall include in the depreciation accounts in operating expenses the charges for depreciation on units of depreciable property jointly used with one or more other carriers. The owning carrier shall credit and each using carrier shall charge the appropriate joint facility accounts in operating expenses with the amounts billed by the owning carrier against each using carrier for its proportion of the service loss on property retired from service whether billed currently as depreciation or when retirements occur as the loss in service value. The using carriers shall be required to account for depreciation or retirement of units of road property jointly used but not owned only to the extent of their contract liability. The same principle shall apply to terminal companies and their nonowner tenants in accounting for depreciation accruals or retire ment charges recorded in the accounts of the terminal companies. INSTRUCTIONS FOR INCOME AND BALANCE SHEET ACCOUNTS 6-1 Current assets. In the group of accounts designated as current assets shall be included cash, those assets which are readily convertible into cash or are held for current use in operations, current claims against others and amounts accruing to the carrier which are subject to settlement in the ordinary course of business within one year. There shall not be included in this group of accounts any amount the collection of which is not reasonably assured within one year because of the known financial condition of the debtor or otherwise. Such items shall be included in account 741, "Other assets", at an amount not in excess of a reasonable estimate of realizable value. Items of current character but of doubtful value previously credited to operating revenue, operating expense or other income accounts shall be written down or written off by charging those accounts, as appropriate. Adjustment of these items of doubtful value shall be made by direct reduction of the asset account in which such doubtful items are carried or by a separate reserve for the uncollectible amount, which reserve shall be applied as a reduction of the current asset account in the balance sheet statement. Provision likewise shall be made for any significant loss due to obsolescence in material and supplies. If it is desired to retain a record of assets written off they shall be recorded at a nominal value in account 741, "Other assets." 6-2 Recorded value of securities owned. The investment in securities other than those issued or assumed by the accounting company shall be recorded in these accounts at the money value, at the time of acquisition, of the consideration given therefor by the accounting company, but excluding amounts paid for accrued interest and accrued dividends. The accounting company shall write down the ledger value of any securities to the extent of impairment in their value or write off entirely if there is no reasonable prospect of realizing any value therefrom, but fluctuations in market value are not to be recorded. Adjustments in the ledger values of securities shall not be delayed beyond the year in which a loss is claimed for income tax purposes. The amount of the adjustment for loss in value written off may be recorded in the accounts by creating a reserve for such loss through concurrent credits to account 723, "Reserve for adjustment of investment in securities". Losses in value of securities written off shall be charged to account 551 "Miscellaneous income charges" or to account 570 "Extraordinary items," as appropriate. Under no circumstances shall securities be stated in these accounts at an amount in excess of their cost to the accounting company. 6-3 Discount, expense, and premium on debt. (a) Ledger accounts shall be provided to cover the discounts, expense, and premiums at the sale or resale of each subclass of funded debt and of receivers' and trustees' securities issued for the benefit of or assumed by the company. (For explanation of "subclass" see account 765, "Funded debt unmatured".) The net debit balances remaining in these ledger accounts shall be included in account 742, "Unamortized discount on long-term debt", and the total of the net credit balances in account 783, "Unamortized premium on long-term debt". (b) Each fiscal period there shall be charged to income account 548, "Amortization of discount on funded debt", a proportion on a consistent basis of each of the debit balances in these accounts, and correspondingly there shall be credited to income account 517, "Release of premiums on funded debt", a similar proportion of each of the credit balances in these accounts. When the total discount and expense applicable to any particular issue of securities does not exceed $25,000, carriers may charge the entire amount to account 548, "Amortization of discount on funded debt", at time of issue. (c) When any funded debt which has been actually issued to bona fide holders for value is reacquired by the accounting company, that proportion of the balance remaining in accounts containing discount, expense and premium on funded debt for the subclass of the security reacquired applicable to the portion reacquired shall be credited or charged thereto, as may be appropriate, and concurrently charged or credited to account 519 "Miscellaneous income", account 551, "Miscellaneous income charges"; or to account 570 "Extraordinary items", as may be appropriate, in accordance with the text of these accounts. Such propor tion shall be based upon the ratio of the par value of the security reacquired to the par value of all the securities of the subclass actually outstanding immediately before such reacquirement. 6-4 Discount, premium, and assessment on capital stock. (a) Separate ledger accounts shall be provided for each subclass of capital stock issued or assumed by the accounting company to cover discount suffered and premium realized at the time of sale of capital stock. General levies or assessments against stockholders shall be credited to the appropriate ledger accounts for the subclass of capital stock against which the levy or assessment is made. (b) The total of net debit balances in these ledger accounts shall be included in account 793, "Discount on capital stock", and the total of net credit balances in account 794, "Premiums and assessments on capital stock". (c) Discount on each subclass of capital stock may be offset or reduced by charges to account 794, "Premiums and assessments on capital stock", to the extent that net gains from premiums or assessments have been included therein or to account 795, "Paid-in surplus", to the extent that net gains from reacquisition and resale or retirement of capital stock applicable to such subclass have been included therein. Any remaining discount may be amortized by charge to account 616, "Other debits to retained income", or may be retained and carried in account 793, "Discount on capital stock", until the stock to which the discount applies is retired. (d) In case the accounting company is permitted and elects with the approval of the Commission, to distribute all or any part of the net balance of paid-in surplus to its stockholders, the amount thus distributed shall be charged to account 795, "Paid-in surplus". (e) When an issue of capital stock, or any part thereof, is reacquired either by purchase or through donations by shareholders and is not canceled, but is held as treasury stock or in sinking or other funds, such stock shall be included in a subdivision of account 791, "Capital stock issued", if treasury stock, and in accounts 715, "Sinking funds", 716, "Capital and other reserve funds", or 717, "Insurance and other funds", as may be appropriate, if the stock is held alive in a fund of the character described in the respective accounts. The reacquired stock shall be included in such accounts |