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3 1026 FEDERAL RESERVE BOARD WASHINGTON St. 3506 November 22 1 1923. I ~ I SUBJECT: Closing of Books on December 31 1 1923• Dear Sir: In order that the Board may have ample time to pass upon all charges which your bank proposes to make against current earnings at closing of books on December 31, 1923, for depreciation allowances, reserves to take care of probable losses, and other extraordinary purposes, it is requested that the dividend resolution of your Board of· Directors be mailed in time to reach the Board's offices not later t~an December 15, 1923. The dividend resolution.should be accompanied with statements showing the following inforrration: 1. Estimated gross earnings, current expenses, proposed charges to current net earnings, and esti~ated net earnings available for surplus and franchise tax. for the calendar year 1923. 2. Unpaid indebtedness of failed or suspended banks to Federal reserve bank, giving the names of the banks, indebtedness of each, character of security, if any, and.estizr.atea losses. 3. lndebtedness to Federal reserve bank of member banks which are considered to be in an unsafe condition, giving the names of the banks, indebtedness of each, character of security, if any, and probable losses. 4. A 9tatement in a form similar to that indicated below, • Showing separately for each property, (a) the cost, estimated market value, reserves now carried, and net book value of land owned; (b) the cost to datet estimated replacement cost, of remodeled buildings or of new buildings, either completed or in course of construction, reserves now carrie.d, and net book value. tpj,"J) Cost Estimated market value Reserves now carried Book value (net) $_________________ . J.027 .., -2TO'l'AL BANKING HOUSE St. 3508 BUILDINGS INCL1ID I:FG VAUL'.rS Cost to date $______~A~'--. Estimate,i replacement cost , Reserves now carried Book value (net) FIXED MACHINERY Am EQUIPMENT $______________ The following rules have been approved by the Federal Reserve Board for the guidance of the Federal reserve banks in submitting requests for permission to make special charges against current net earnings, and for closing of books on December 31. 1. Bank pr~~i~~~· (a) In passing upon requests to set up de~ preciation reserves or to charge off depreciation allowances, the Board will in general permit a charge against current net earnings of not exceeding 2 per cent of the estiwated replacement cost of bank buildings~ including vaults but excluding fixed rrachinery and equipment. In case, ~owever, the estimated replacement cost is considerably below the net book value, the Beard will consider requests from Federal reserve banks for permission to write off a depreciation charge in excess of 2 per cent. (b) The esti~ated replacement cost, less residual value, of fixed machinery and equipment, such as boilers, engines, dynamos, motors, pOwer pumps, elevators, heating, plumbing, lighting and ventilating systems, pneumatic tubes, refrigeration plants, automatic fire sprinkler equipment, and vacuum cleaners, should be determined, and a reserve set aside each year out of current net earnings to cover replacements. Annual additions to this reserve should be based on the estimated life of the wachinery and equipment, with a view to the ultimate replacement of the machinery and equipment, but in no case should the annual charge exceed 10 per cent of the cost thereof. (c) No charges against current net earnings will be authorized by the Federal Reserve Board to cover depreciation on land where the estimated ~arket value of the land is equal to or in excess of its net book value. (d) The estimate of the market value of land and of the replacement cost of buildings either completed or in course of construction and of fixed machinery and equipment, should be obtained from the best available authorities. A copy of the estirra.tes thus obtained should be enclosed with your request for authorityto charge current net earnings with depreciation on bank premises unless similar estimates formerly submitted to the Federal Reserve Board are still applicable, in which event reference thereto will be sufficient. The estimated replac~ment cost of buildings including vaults, but excluding fixed machinery and equiproont, may be arrived at by determining the mean of two amounts, namely; (1) the total actual cost of const~~ction, and (2) the estimated cost of construction based on the lowest prices that have existed during the last fifteen years. (e) nbere properties have been purchased with the intention of razing existing buildings and of erecting new banking ~arters the Board ~ 1028 .. .. St. 3808. -3- will consider requests for permission to deduct from current net earnings an ~ount equal to the difference between the cost of the property and the market ~alue of the building site exClusive of improvements. (2) Furniture and equipment. The balance remaining in this account on December 31 snould be charged to Profit and Loss. (3) Depreciation on United States securities. Full prov1s1on should be rr.ade for depreciation (based on market value) on United States securities before any amount is transferred to surplus account. In case the present reserve for depreciation is in excess of the actual net depreciation on total hoJ..di:r)gs of United States securities as determined by approxirrAte market quotations as of December 28, which the Board will telegraph to your bank on the morning of December 29, such excess should be credited to Profit and Loss. (4) Su~us and franChise taxes. After all current expenses, d-ividendst depreciation allowances and other extraordinary charge-offs authorized by the Federal Reserve Board have been provided for out of earnings, the rerraining net earnings shall be distributed as follows: (a) Transfer to surplus account all available net earnings providing the total surplus will not as a result exceed the bank's subscribe~ capital, in which case only such a~tnt should be transferred as is necessary to increase the surplus account to an amount equal to the bank's subscribed capital. (b) Of the balance of net earnings, if any, 10 per cent should be transferred to surplus account, and 90 per cent paid to the United States Governrrent as a franchise tax. Instructions as to the time and method of payment of the franchise tax will as usual be issued at a later date by the Treasury Department. Very truly yours 7 \'Talter L. Eddy, Secretary. TO CHH RMEN OF P. LL FEDERAL RESERVE BANKS
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