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480 FEDERAL RESERVE BOARD WASHINGTON November 1 9 , 1927 St, 5577ยป on December 3 1 , 1927. ADDRESS OFFICIAL CORRESPONDENCE TO THE FEDERAL RESERVE BOARD SUBJECT: C l o s i n g of Books Dear Sir: . In accordance with the usual, custom i t w i l l be appreciated i f the r e s o l u t i o n of your Board, of Directors f o r the payment of the seni-annual dividend and requests f o r authority to charge earnings with depreciation allowances, reserves f o r probable l o s s e s , e t c . , are received at the Board's o f f i c e s not l a t e r than December 10, 1927, and are accompanied with the f o l l o w i n g information: 1. Estimated g r o s s e a r n i n g s , c u r r e n t expenses, a d d i t i o n s to and proposed deductions from c u r r e n t n e t e a r n i n g s , and n e t e a r n ings a v a i l a b l e f o r s u r o l u s and f r a n c h i s e t a x f o r the c a l e n d a r y e a r 1927. 2. Unpaid indebtedness of f a i l e d hanks to the Federal reserve "bank, giving the names of the banks, indebtedness of each on November ]0, character of s e c u r i t y , i f any, and probable l o s s in the case of oach bank. 3. Indebtedness to Federal r e s e r v e bank of member banks c o n s i d e r e d to be in an u n s a f e c o n d i t i o n , g i v i n g the names of the banks, i n d e b t e d n e s s of each on November 30, c h a r a c t e r of s e c u r i t y , if any, and e s t i m a t e d l o s s i n the case of each bank. The general procedure followed i n the past with reference to c h a r g e - o f f s , depreciation and other reserves, t r a n s f e r s to surplus account and payment of franchise tax, which i s covered by the attached memorandum, w i l l be followed at the end of t h i s year. Very t r u l y yours, J. C. N o s l l , As s i staut- Secret-ry. Enclosure. LETTER TO ALL CHAIRMEN f e d e r a l Reserve Board, November 19, l$2j ,^ -4t5- K GEMERAL PRACTICE OF FSDSAL RESERVS BOARD flSiliBfllM DEFRSClAflOli ESSWD6 05F BAN* PREMISES, RESERVES FOR LOSSES 05? W S R dF FAILED fiAUKS, MD OlKW CHARGES TO CURRENT 3T5T EARNINGS, A2TD '.STHOD OF DEtSRMl!#HQFRANCHISE TAXES TO BE PAID BY FEDERAL RESERVE BAMS 1. Bank Premises, (a) Land. No charges a g a i n s t current net earnings w i l l be authorized "by the Board to cover depreciation on l a n d where the estimated market value of the land i s equal to or in excess of i t s net book value. (b) B u i l d i n g s . Hie Board w i l l in general authorize the banks to charge current net earnings each year with a depreciation reserve on $ank b u i l d i n g s , including v a u l t s but excluding f i x e d machinery and equipment, of not exceeding 2 per cant of t h e i r estimated replacement c o s t , such replacement post to be determined in a manner approved by the Board. Where the book value of a building i s in e x c e s s of replacement c o s t , the Board w i l l consider a request f o r permission to charge o f f an amount s u f f i c i e n t to reduce the book value to estimated replacement c o s t . ( c ) Fixed machinery and equipment. The Board w i l l authorize the banks to charge current net earnings each year with a depreciation reserve of not to -exceed 10 per cent of the c o s t of f i x e d machinery and equipment, such as b o i l e r s , engines, dynamos, motors, power pumps, e l e v a t o r s , h e a t i n g , plumbing, l i g h t i n g , and v e n t i l a t i n g systems, pneumatic tubes, r e f r i g e r a t i o n p l a n t , automatic f i r e sprinkler equipment, and vacuum c l e a n e r s . 2. Reserves f o r l o s s e s on paper of suspended banks and banks in an overextended c o n d i t i o n . Authorizations to s e t a s i d e reserves to cover l o s s e s on paper of suspended banks or banks in an over-extended c o n d i t i o n w i l l be l i m i t e d to such actual l o s s e s , in e x c e s s of r e s e r v e s already carried, as the bank may reasonably be expected to s u s t a i n on such papor. 3. Furniture and equipment. I t w i l l be the general p r a c t i c e of the Board tjo authorize the banks to charge off at the end of the year a l l f u r n i t u r e and equipment purchased during the current year. 4. Other charges to current net earnings. Where a bank d e s i r e s to s e t up any reserve other than those mentioned above or to make any other unusual charge against current earnings a.t the end of the ^e?r, f u l l and complete information should be furnished the Board regarding the n e c e s s i t y f o r such charge. 5. Surplus and f r a n c h i s e taxes. A f t e r a l l current expenses, dividends, depreciation and other r e s e r v e s , and c h a r g e - o f f s authorized by the Board have been provided f o r , any remaining net earnings s h a l l be d i s t r i b u t e d "0 f o l l o w s : (a) Transfer to surplus account a l l net earnings u n l e s s such transf e r w i l l r e s u l t in the bank's surplus account being in e x c e s s of i t s subscribed c a p i t a l , in which case only such amount should be t r a n s f e r r e d as i s necessary to increase the surplus account to an amount equal to the subscribed c a p i t a l . f (b) D i s t r i b u t e a l l a v a i l a b l e net earnings a f t e r the bank's surplus account i s equal to i t s subscribed c a p i t a l as f o l l o w s : (1) Transfer 10 per cent to surplus account. (2) Pay 90 per cent to United S t a t e s Government as a f r a n c h i s e tax. St.5577a
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