(g) The general-ledger balance of each suspense or open account as of the close of each month shall be verified by comparison with the total of the detail items covered therein, except that when so authorized by this Commission upon showing that the integrity of any ledger account can be maintained with less frequent verification of the balances, verifications may be made at periods designated in this Commission's specific authority.

(h) Balances shall be struck for each account at the close of each calendar year and the balances thus determined in each account at the close of each year shall be carried forward to the corresponding account for the succeeding year.*†

+In §§ 20.01-1 to 20.01-8, inclusive, the numbers to the right of the dash correspond with the respective general instruction numbers in Uniform system of accounts for pipe-line companies, Interstate Commerce Commission, Nov. 16, 1934. Cross references to accounts are made by citing the account number, e. g., account No. 55, instead of the corresponding section number (§ 20.55).

CROSS REFERENCE: For regulations governing the destruction of records, see Part 203.

20.01-2 Definitions. When used in this system of accounts the term:

(a) "Actually issued", as applied to certificates of capital stock or evidences of funded debt issued or assumed by the carrier 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 carrier.

(b) "Actually outstanding", as applied to certificates of capital stock or evidences of funded debt means those which have been "actually issued" and are not held by or for the carrier.

(c) "Affiliated companies", means:

8

(1) Controlled companies, i. e., companies solely controlled by the carrier, and also companies jointly controlled by the carrier and others under a joint arrangement.

(2) Controlling companies, i. e., companies solely controlling the carrier and also companies which jointly control the carrier under a joint arrangement.

(3) Companies controlled by controlled companies.

(4) Companies controlled by controlling companies.

(i) By "control", is meant the ability to determine the action of a company. For the purposes of this paragraph the following are to be considered forms of control:

(a) Right through title to securities issued or assumed by the controlled company to exercise the major part of the voting power in the controlled company.

(6) Right through agreement or through sources other than title to securities to name the majority of the board of directors, managers, or trustees of the controlled company.

(c) Right to foreclose a priority lien upon all or a major part in value of the tangible property of the controlled company.

(d) Right to secure control in consequence of advances made for construction of the property of the controlled company.

Page 458

*For statutory citation, see note to § 20.00–1.

(ii) A leasehold interest in the property of a company is not, for the purpose of these accounts, to be classed as a form of control over the lessor company.

(iii) Sole control is that which rests in one company.

(iv) Joint control is that which rests in two or more companies, and which is held under a joint arrangement.

(d) "Book cost" or "Book value" means the amount at which assets are to be recorded in the accounts of the carrier.

(e) "Book liability" means the amount at which securities issued or assumed by the carrier and other liability items are to be recorded in the accounts of the carrier.

(f) "Carrier" means common carrier.

"Carrier property" means physical property used in pipe-line service and physical property held for such service under a definite plan.

(h) "Cost of removal" means the cost of demolishing, tearing down, dismantling, removing, or otherwise disposing of carrier property and recovering the salvage.

(i) "Debt expense", as applied to debt, means all expenses in connection with the issue 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 for marketing such evidence of debt; fees and expenses of listings on exchanges; and other like costs.

(j) "Delayed items" means items relating to transactions which occurred before the current calendar year, including adjustments of

errors.

(k) "Depreciable accounts" are those in which it is required shall be recorded the cost of those classes of property for which depreciation charges in operating expenses and other accounts are prescribed by this system of accounts.

(1) "Depreciation" means the loss in service value (note paragraph (cc) of this section) not restored by current maintenance and incurred in connection with the consumption or prospective retirement of physical property in the course of service from causes against which the carrier is not protected by insurance, which are known to be in current operation, and the effect of which can be forecast with a reasonable approach to accuracy.

NOTE: Among the causes which may result in the loss of the service value of depreciable property are:

(1) Physical depreciation.

(2) Obsolescence.

(3) Inadequacy.

(4) Decline and exhaustion of the traffic which the property was designed to transport.

(m) "Discount", as applied to actually outstanding (note paragraph (b) of this section) securities issued or assumed by the carrier, means the excess of the par value of the securities plus interest or dividends

Page 459

accrued at the date of the sale over the current money value of the consideration received at their sale.

(n) "Group plan", as applied to depreciation accounting, means the plan under which depreciation charges are accrued upon the basis of the book cost of all property included in each depreciable account, using the average service life thereof properly weighted, and upon the retirement of any depreciable property its full service value is charged to the depreciation reserve whether or not the particular item has attained the average service life.

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

(p) "Minor items", as applied to carrier property other than land, means any part or element thereof which is not designated as a unit of property in the note following § 20.192.

(q) "Nominally issued", as applied to certificates of capital stock or evidences of funded debt, 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 carrier but which have not been sold.

(r) "Nominally outstanding", as applied to certificates of capital stock or evidences of funded debt, means those which, after being actually issued, have been reacquired by or for the carrier under such circumstances as require them to be held alive and not canceled or retired.

(s) "Nonaffiliated companies" means all companies other than those defined as affiliated in paragraph (c).

(t) "Noncarrier property" means property neither used in nor held under a definite plan for pipe-line service or service incidental thereto.

(u) "Nondepreciable accounts" are those in which shall be recorded the book cost of those classes of property for which no charges to operating expenses for depreciation are permitted.

(v) "Original cost", as applied to carrier property, means the actual money cost of the property at the time it was first devoted to pipe-line service whether by the accounting carrier or by the predecessor pipe-line carrier.

(w) "Pipe-line operations" and "pipe-line service" mean the service by common carriers in transporting oil or other commodities, except water and natural or artificial gas, by pipe lines and service incidental thereto.

(x) "Premium" as applied to actually outstanding securities issued or assumed by the carrier, means the excess of the current money value of the consideration received at their sale over the sum of their par value and interest or dividends accrued at the date of the sale.

(y) "Property retired", as applied to carrier property, means property which has been removed, sold, abandoned, destroyed, or

Page 460

otherwise withdrawn from pipe-line service, and not held for such service.

NOTE: The dismantling or tearing down of a structure or a unit of equipment in order to replace parts thereof with improved parts, the purpose of which is to modernize the unit and to extend its life beyond its original expectation of life, shall be accounted a retirement, but the dismantling or stripping of such property only to the extent necessary to recondition or to replace in kind defective parts shall be accounted as repairs.

(z) "Replacement" means the installation of physical property in substitution of other property which has been retired.

(aa) "Retirement", as applied to physical property, means the permanent withdrawal of the property from the service in which it has been used.

(bb) "Service life" means the period between the time of installation (note paragraph (hh) of this section) and the time of retirement (note instruction 2-II, paragraph (ii) of this section) of carrier property.

(cc) "Service value", as applied to carrier property, is the book cost (note paragraph (d) of this section) thereof plus the cost to the carrier of salvaging the property and less the value of the salvage (note paragraph (jj) of this section) therefrom.

NOTE: The cost of recovering line pipe and fittings which are replaced in kind shall be included in operating expenses and not as a factor in the service value of such property. (See also text of accounts Nos. 602, 652, 752, "Repairs of pipe lines", and 603, 653, 753, "Changing of line construction.")

(dd) "Shop plant" means a shop or group of shops for the repairs and/or construction of carrier property.

(ee) "Straight-line method", as applied to depreciation accounting, means the plan under which the service value of property is charged to operating-expense, carrier-property, and clearing accounts and credited to account No. 74, "Accrued depreciation-Carrier property", through equal annual charges based on established rates applied to the book cost of the property during its service life.

(ff) "The carrier" means the accounting company.

(gg) "These accounts" means the accounts of the particular group to which the instruction relates; for example, if used in connection with the carrier's property accounts it means accounts Nos. 101 to 192, inclusive.

(hh) "Time of installation" means the date at which carrier property is completed and/or placed in pipe-line service.

(ii) "Time of retirement" means the date at which carrier property is withdrawn from pipe-line service.

(jj) "Value of salvage" means the amount received for property retired, or for the material salvaged therefrom, if sold, or if retained the value at which the property or the material salvaged therefrom is chargeable to account No. 17, "Material and supplies", or other accounts of this system of accounts.**

20.01-3 Unaudited items. When the amount of any known item affecting the income 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

*For statutory citation, see note to § 20.00-1.

Page 461

included in the proper account and credited to account No. 78, "Other deferred credits", or charged to account No. 28, "Other deferred debits", as may be appropriate, the necessary adjustments to be made (through the account in which was recorded the estimate) when the item is audited. If, during the interval between the date of inclusion of the item in the accounts and the date on which it is audited, a substantial difference is determined between the initial estimate and the actual amount of the item, appropriate adjustment shall be made in the current accounts to cover such difference. The carrier shall preserve in its files a record of the information upon which this supplemental estimate is based. The carrier is not required to anticipate minor items which would not appreciably affect the accounts.**

20.01-4 Delayed items. (a) Delayed items (note § 20.01-2 (j)) shall be charged or credited to the same accounts which should have been charged or credited if the items had been taken up or adjusted in the period to which they pertain. When the amount of a delayed item is relatively so large that its inclusion in the accounts for a single month would seriously distort those accounts, it may be distributed in equal amounts within the current and remaining months of the calendar year.

(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 carrier, if so authorized, upon application to this Commission, may distribute to surplus so much of the amount as may be authorized. In requesting the authority, the carrier shall file with this Commission the full particulars concerning each item and the reasons which, in its judgment, indicate the propriety of such accounting.*†

20.01-5 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 (not being incident to current operations) shall be included in account No. 304, "Miscellaneous credits", or account No. 314, "Miscellaneous debits", as may be appropriate.

(b) Minor amounts of profits and losses on foreign exchange arising in the course of the carrier's operations and impracticable of allocation to each specific transaction involved shall be included in account No. 409, "Miscellaneous income", or account No. 415, “Miscellaneous income charges", as may be appropriate.*†

20.01-6 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 accounting rules 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 items in the account concerned only

Page 462

*For statutory citation, see note to § 20.00-1