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Sec. 2-15 Contingent assets and con

tingent liabilities. Contingent assets and contingent liabilities shall not be included in the body of the balance sheet but shall be explained in the footnotes to the financial statements. (ER-980, 42 FR 25, Jan. 3, 1977) Sec. 2-16 Notes to financial statements.

All matters which are not clearly identified in the body of the financial statements but which may influence materially interpretations or conclusions which may reasonably be drawn in re'gard to financial condition or earnings position shall be clearly and completely stated as footnotes to the financial statements. Sec. 2-17 Revenue and accounting prac

tices. (a) Revenue accounting practices shall conform to the provisions of account 2160, Air Traffic Liability.

(b) Physical verification of the reliability of passenger revenue accounting practices shall be made at least once each accounting year by each route air carrier and an analysis showing the results of such verification shall be submitted to the Board within 30 days following its completion.

(c) For those carriers who use the yield or average-fare method to determine earned revenue, the analysis supporting the verification shall include:

(1) The cutoff date for the liability to 'be verified; such cutoff date shall be at the end of a calendar month.

(2) The number of months after the •cutoff date during which documents were examined to verify the liability; the number of months after the cutoff date during which documents are examined shall not exceed the maximums set forth 'below:

Maximum Class of carrier:

months a TWA and Pan American.

18 Trunks (except TWA and Pan American)

12 All other route air carriers.-

6 * Applies only to carriers on & yield or average-fare basis.

(3) The nature of the documents which were examined for purposes of the verification.

(4) The totals for each of the various types of documents examined, on actual or sampling basis.

(5) A description of the sampling technique and conversion to totals, i sampling was employed.

(6) The amount and basis for all estimates employed in the verification.

(7) The amount of resulting adjustments and the quarter in which such adjustments were, or are to be, made in the accounts.

(d) For those carriers who use the sales-lift match method to determine earned revenue, the analysis supporting the physical inventory verification shall include:

(1) The cutoff date for the liability to be verified; such cutoff date shall be at the end of a calendar month.

(2) A trial balance as of the cutoit date of all subaccounts supporting the Air Traffic Liability control account; the subsidiary trial balance must agree with the Air Traffic Liability control account or a reconciliation statement furnished.

(3) A statement to the effect that a sales listing of the value of all unmatched auditor coupons has been compiled and compared to the general ledger control figure; the statement required by this subparagraph shall indicate whether or not the value of the unmatched coupons is in agreement with the general ledger. If the sales listing is not in agreement with the Air Traffic Liability control account, the amount of such difference shall be shown on such statement.

(e) Those carriers who are on a saleslift match method for determining earned revenue shall submit to the Board an annual statement showing the value of purged auditor coupons from the sales listing, during the calendar year, by quarters. This statement shall accompany the analysis supporting the physical verification, as described in paragraph (b) above.

(f) An annual statement shall be filed with the Board by those carriers who use the sales-lift match method to determine earned revenue, showing the value of revenue earned due to loss, destruction, or mutilation of lifted coupons from passengers who have been furnished transportation. This statement shall show the basis used in computing the amount of revenue taken up as income. The amount of revenue shall be shown by calendar quarters. The statement shall accompany the analysis supporting the physical verification, as described in parsgraph (b) above. (ER-948, 41 FR 12290, Mar. 25, 1976)

Sec. 2-18 Transactions between mem- priate. Where such services and assets bers of an affiliated group.

are reflected in tariffs filed with the (a) Unless otherwise approved by the

Board or in price lists held out to the Board's Director, Bureau of Accounts and general public, the associated revenues Statistics, transactions between the regu

shall be recorded at the rates, fares or lated activity of an air carrier and ac

charges contained therein in the approtivities conducted by nontransport divi

priate incidental services, capital gains sions or other corporate members of an

or air transport income accounts. Where affiliated group shall be recorded by the no tariff or prevailing price list is appliair carrier as provided in paragraphs (b)

cable, the associated revenue shall be rethrough (e) of this section 2–18.

corded at the higher of cost or estimated (b) Charges for services and assets

fair market value of the asset or service purchased by or transferred to a regu

involved. Any difference between the revlated activity of an air carrier from other

enue so recorded and the agreed considactivities of an affiliated group shall be

eration to the air carrier shall be recordrecorded initially in the accounts of the

ed in subaccount 88.1 Intercompany regulated air carrier activity at their Transaction Adjustment/Credit or subinvoice price, if determinative from a

account 89.1 Intercompany Transaction prevailing price list held out to the gen

Adjustment-Debit. eral public in the normal course of

(d) Income taxes shall be allocated business. Where the services and assets among the transport entities of the air received by the regulated activity of carrier, its nontransport divisions, and the air carrier are not marketed by the members of an afiliated group. Under affiliated supplier to the general public

circumstances in which income taxes are under a prevailing price list, the charges

determined on a consolidated basis by recorded by the air carrier activity for

an air carrier and other members of an such services and assets shall be the affiliated group, the income tax expense lower of their cost to the originating ac

to be recorded by the air carrier shall tivity of the affiliated group, less all ap

be the same as would result if deterplicable valuation allowances, or their mined for the air carrier separately for estimated fair market value. In the case all time periods, except that the tax efof charges against income for services fect of carryback and carry-forward received, as distinguished from charges operating losses, investment tax credits, for property and equipment or other as- or other tax credits generated by operasets acquired, any difference in the tions of the air carrier shall be recorded amount recorded and the consideration by the air carrier during the period in given by the air carrier shall be entered which applied in settlement of the taxes in subaccount 88.1 Intercompany Trans- otherwise attributable to any member, or action Adjustment-Credit or in subac- combination of members, of the affiliated count 89.1 Intercompany Transaction group. Any difference between the inAdjustment-Debit. In the case of prop- come tax so recorded and the amount erty and other assets acquired, any dif- at which settlement is to be made shall ference between the amount recorded be recorded in subaccount 88.1 Intercomand the consideration given by the air pany Transaction Adjustment-Credit or carrier shall be entered in appropriate in subaccount 89.1 Intercompany Transsubaccounts of account 1870 Property action Adjustment-Debit, as is approAcquisition Adjustment, paralleling sub- priate. account 88.1 Intercompany Transaction (e) The principles set forth in this Adjustment-Credit and subaccount 89.1 section 2–18 shall apply equally to corIntercompany Transaction Adjust- porations, proprietorships, partnerships, ment-Debit, and shall be cleared to or other forms of business organizations. such income accounts through periodic

(ER-755, 37 FR 19726, Sept. 21, 1972, as amortization at rates coinciding with amended by ER-980, 42 FR 25, Jan. 3, 1977) those applied to other associated assets. (c) The cost, less all associated valua

82-19 Accounting for pension plans. tion allowance accumulations, of serv- (a) In accordance with the provisions ices and assets sold by or transferred of section 22(d) or 32(d), as applicable, from the regulated activity of an air car- each air carrier which has an employee rier to other activities of an affiliated pension plan or plans shall file with the group shall be charged by the air carrier Director, Bureau of Accounts and Statisto either applicable incidental services or tics, & standard statement showing with capital gain income accounts, as appro- respect to each pension plan covered by

the statement, the following information: (1) A copy of the text, or if there is no text, a comprehensive outline of each pension plan covering pensions, other than those required by law, to active, retired, or former employees or their representatives or beneficiaries, the cost of which is borne in whole or in part by the carrier, except that no filing will be required for a plan which does not currently apply to present employees and pursuant to which payment to less than 100 former employees and the beneficiaries or representatives of such former employees were made during the reported year; (2) the number (rounded to the nearest 50) and types of employees covered (i.e., pilots, stewardesses, mechanics, etc.); (3) for each fund which forms a part of said plan: A copy of the trust agreement, declaration of trust or other instrument pursuant to which said pension was established, or, if there is no such agreement, declaration of trust or other instrument, a description of the arrangement, if any, which requires the payment of any pensions or benefits under each plan; and (4) description of the accounting policies for each plan which,

in the case of any unfunded plans, or plans for which no Department of Labor Form D-2 is filed, shall include actuarial assumptions made.

(b) In the event of a change in any of the items covered in the statement filed pursuant to paragraph (a) of this section, the carrier shall file with the Director, Bureau of Accounts and Stetistics, prior to the date on which said change is implemented, a supplemental statement showing: (1) The item affected and a detalled explanation of the change; and (2) the estimated effect of the change on the carrier's pension benefit accounts.

(c) Each air carrier which is required to file the statement prescribed by paragraph (a) of this section shall also file annually with the Director, Bureau of Accounts and Statistics, in duplicate 11 applicable, a copy of its Department of Labor Form D-2. Employee Welfare or Pension Benefit Plan Annual Report Form, concurrent with the filing due dates prescribed by the Department of Labor. (ER-797, 38 FR 10925, May 3, 1973)

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Section 3—Chart of Balance Sheet Accounts Continued

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Maintenance buildings and improvements.

Other buildings and improvements.
Ground property and equipment.
Allowance for depreciation:

Improvements to leased buildings and equipment.
Furniture, fixtures and office equipment.

Maintenance buildings and improvements.

Other buildings and improvements..
Allowance for depreciation of light equipment and ground property and equipment,

and amortization of overhaul and airworthiness costs.
Equipment purchase deposits and advance payments.
Construction work in progress.

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Other assets:

Long-term prepayments.
Chamortized developmental and preoperating costs.
Inamortized debt expense.
Property acquisition adjustment.
Intangible assets....

Other assets.
Current iiabilities:

Current maturities of long-term debt.
Notes parable:


Trade accounts payahle.
Accounts payable-other.
Accrued salaries, wages.
Accrued vacation liability.
Acrued interest..
Accrued taxes.
Disidends declared.
Air trallic liability

Other current liabilities.
Noncurrent liabilities:

Long-term debt..
Advances from associated companies.
Pension liability.
Stock purchase plan liability.

Other noncurrent liabilities.
Deferred credits:

Deferred income taxes.
Dulerred investment tax credits...

Other deferred credits...
Commitments and contingent liabilities:
Siockholders' equity:

Preferred stock
Common stock.
Subscribed and unissued stock.
Additional capital invested.
Premiun on capital stock..
Discount on capital stock

Other capital stock transactions..
Retained earnings.
Net unrealized loss on noncurrent marketable equity securities.
Treasury stock.



2820 2910 2460 2890 28.0.1 2890.2 2890.3 2000 2950 2990

1 Prescribed for group II and group III air carriers only.

. At the option of the air carrier, these accounts may be assigned Nos. 2629 and 2729, respectively, for accounting purposes.

NOTE.-Digits to right of decimals and italicized codes established for CAB control purposes only. (ER-980, 42 FR 26, Jan. 3, 1977)

Section 4-General

tion 03 as investor controlled companies,

and investments in other than associated (a) The balance sheet accounts are designed to show the financial condition

companies shall be recorded at cost, exof the air carrier as at & given date,

cept as provided in paragraph (f) of this

section. Investments in investor conrefiecting the asset and liability balances carried forward subsequent to the clos

trolled companies shall be recorded at ing or constructive closing of the air

cost, except as provided in paragraph carrier's books of account.

(c), plus the equity in undistributed (b) The balance sheet accounts pre

earnings or losses since acquisition.

(c) Permanent impairment in the scribed in this system of accounts for

value of securities may be reflected each air carrier group are set forth in

through charges to profit and loss clasSection 3, Chart of Balance Sheet ACcounts. The balance sheet elements to

sification 8100 Nonoperating Income and be included in each account are pre

Expense-Net. sented in section 6 and the balance sheet

(ER-755, 37 FR 19726, Sept. 21, 1972, as

amended by ER-948, 41 FR 12292, Mar. 25, groupings to be accorded each account

1976; ER-980, 42 FR 27, Jan. 3, 1977) are set forth in section 5.

Sec. 5–3 Property and equipment. Section 5–Balance Sheet Account

(a) All investments of the air carrier Groupings

in land and units of tangible property Sec. 5-1 Current assets.

and equipment shall be included within

this general classification. (a) Include in this classification all

(b) The cost of properties covered by resources which may reasonably be ex

conditional sales contracts shall be repected to be realized in cash or sold or

corded in the appropriate property and consumed within one year, such as un

equipment accounts of the buyer, and restricted cash, those assets that are

removed from the property and equipreadily convertible into cash or are held

ment accounts of the seller, as at the for current use in operations, and cur

date on which possession is delivered to rent claims against others to the extent

the buyer unless there is material uncersettlement is reasonably assured, except

tainty as to the complete consummation that securities of others classified in in

of the transaction. vestment and special fund accounts at

(c) Property obtained under an agreedate of acquisition need not be reclassifiled until disposition thereof.

ment for lease or lease with option to

purchase, not constituting & conditional (b) Perpetual inventories of all ma

sale, shall not be recorded on the books terials, supplies, lubricating oils, motor

of the lessee until actual purchase, at fuels and flight equipment expendable

which time the price at actual date of parts shall be maintained and shall be

purchase plus leasehold improvements physically verified at least annually. Any

shall be recorded in the appropriate shortage, overage, shrinkage, etc., shall

property and equipment accounts. be adjusted by charges or credits to the

(d) The general classification "Propappropriate expense account. (c) Items of general current asset

erty and Equipment" shall be subclassicharacteristics which are not expected to

fied as between “Operating Property and be realized or consumed within one year

Equipment" and "Nonoperating Prop

erty and Equipment.” “Operating Propmay be included in this classification

erty and Equipment” shall encompass provided the noncurrent portion is not substantial in amount and classification

items used in air transportation services as a current item will not impair the sig

and services incidental thereto. “Nonnificance of working capital.

operating Property and Equipment"

shall encompass investments in property Sec. 5-2 Investments and special funds. and equipment not separately accounted

(a) Include in this classification long- for within a nontransport division but term investments in securities, securities assigned to other than air transportation which are not readily marketable, funds and its incidental services, and property set aside for specific purposes or involv- and equipment held for future use. ing restrictions preventing current use, (e) Operating and nonoperating propcontract performance deposits and other erty and equipment shall be accounted securities, receivables, or funds not avail- for separately in accordance with the able for current operations.

following instructions: (b) Investments in associated com- (1) Investment in property and equippanies, other than those defined in sec- ment shall be recorded at total cost 10

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