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FEDERAL RESERVE BOARD WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE TO THE FEDERAL RESERVE BOARD November 26, 1924. s t . 4333. SUBJECT: Closing of Books on December 31, 1924, Dear S i r : In order t h a t the Board may have ample time to pass upon a l l charges which your "bank proposes to make against current earnings when the books are closed on December 31» 1924, f o r depreciation allowances, f o r reserves to take care of probable l o s s e s , and f o r other extraordinary purposes, i t i s requested t h a t the dividend r e s o l u t i o n of your Board ef Directors be mailed i n time to reach the Board's o f f i c e s not l a t e r than December 10, 1924, The dividend resolution should be accompanied with statements showing the following information: 1. Estimated gross earnings, current expenses, proposed charges to c u r r e n t n e t earnings, and net earnings available f o r surplus and franchise t a x , f o r the calendar year 1924. 2. Unpaid indebtedness of f a i l e d or suspended tanks to Federal reserve bank, giving the names of the banks, indebtedness of each on November 30, character of s e c u r i t y , if any, and estimated losses. 3. Indebtedness 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 on November 30« character of s e c u r i t y , i f any, and probable losses. 4. A statement in the form outlined below, showing separately for each property acquired for Banking House purposes, (a) the c y s t , amounts charged o f f t net book value, and estimated market value of land owned; (b) the c o s t to November 30, amounts charged o f f , reserves c a r r i e d , net book value, and estimated replacement cost of buildings, exclusive of fixed machinery and equipment, e i t h e r completed or i n course of construction; (c) the c o s t to November 30, amounts charged o f f , reserves c a r r i e d , and net book value of fixed machinery and equipment. LAND Cost to November 30 Amount charge d off Book value (net) Estimated market value BUILDING INCLUDING VAULT Cost to November 30 Amount charged off Reserves now carried Book value (net) Estimated replacement cost FIXED MACHINERY AND EQUIPMENT Cost to November 30 Amount charged off Reserves now carried Book value (net) $. $ $ In the case of land on which a new building has been or i s to be constructed the cost of the land (building s i t e ) should agree with the amount reported against item 6 of quarterly bank premises report (Federal Reserve Board Form St. 2810). In case of buildings purchased and occupied as bank quarters, the reported cost of land should represent i t s f a i r market value at time of purchase. The balance of the purchase p r i c e should be considered as the cost of the building. The following r u l e s have been approved by the Federal Reserve Board for the guidance of the Federal reserve banks i n submitting requests f o r p e r mission to make special charges against current net earnings, and f o r closing of books on December J l . 1. Bank Premises, (a) Land. No charges against current net earnings w i l l be authorised by the Federal Reserve Board to cover depreciation on land where the estimated market value of the land i s equal to or i n excess of i t s net book value. (b) Buildings. In passing upon requests to set •up depreciation reserves on bank buildings, the Board w i l l in general permit a charge against current net earnings of not exceeding 2 per cent of estimated replacement c o s t , including vaults but excluding fixed machinery and equipment. In case the net book value of a building i s i n excess of i t s estimated replacement c o s t , the Board w i l l consider requests from Federal reserve banks f o r p e r mission to write off a depreciation charge not exceeding the amount of such excess. (c) Fixed machinery and equipment. A reserve should be set aside each year to cover depreciation on fixed machinery and equipment, such as b o i l e r s , engines, dynamos, motors , power pumps, elevators, heating, 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 s , automatic f i r e sprinkler equipment, and vacuum cleaners. Annual additions to t h i s reserve should be based on the estimated l i f e of the machinery and equipment, but i n no case should the annual charge exceed 10 per cent of c o s t . Replacements of Fixed Machinery and Equipment should Toe charged to t h i s reserve. (d) Estimates of the market value of land and of the replacement c o s t of buildings e i t h e r completed or i n course of construction should be obtained from the b e s t available a u t h o r i t i e s . A copy of the estimates thus obtained should be enclosed with your request f o r authority to charge current net 'earnings with depreciation on bank premises unless similar estimates have been previously submitted to the Federal Reserve Board. For the purpose of t h i s report the estimated replacement cost of buildings including v a u l t s , but excluding fixed machinery and equipment, may be arrived at by determining the mean of two amounts, namely; ( l ) the t o t a l actual cost of construction, and (2) the estimated cost of construction based on the lowest p r i c e s t h a t have existed during the f i f t e e n years preceding the comp l e t i o n of construction. (e) Where p r o p e r t i e s have been purchased with the i n t e n t i o n of razing e x i s t i n g buildings and of e r e c t i n g new banking quarters the Board w i l l consider requests f o r permission to deduct from current net earnings an amount equal to the difference between the cost of the property and the market value of the building s i t e exclusive of improvements. 2. Furniture and equipment. Requests to charge off the balance remaining i n the Furniture and Equipment account on December 31 should be accompanied with an itemized l i s t of a l l Furniture and Equipment carried on the books as of the date your request i s submitted and also with a l i s t of additional f u r n i t u r e , i f any, t h a t i t i s proposed to purchase during the remainder of the year. 3- Depreciation on United States s e c u r i t i e s . A reserve amounting to 3 per cent of the par value of U. S. conversion bonds of I9U6-U7 may be set aside to cover depreciation on such bonds. In case the present reserve f o r depreciation i s in excess of a c t u a l depreciation as above determined such excess should be c r e d i t e d ' t o P r o f i t and Loss. 4. Surplus and franchise taxes. After a l l current expenses, dividends, depreciation allowances and other extraordinary c h a r g e - o f f s authorized by the Federal Reserve 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 as follows: (a) Transfer to surplus account a l l available net earnings providing the t o t a l surplus w i l l not as a r e s u l t exceed the bank's subscribed c a p i t a l , in which case only such amount shall be transferred as i s necessary to increase the surplus account.to an amount equal to the bank's subscribed c a p i t a l . (b) Of the balance of net earnings, if any, 10 per cent shall be transferred to surplus account, and 90 per cent paid to the United States Government as a f r a n c h i s e tax. - 4 - I n s t r u c t i o n s as to the time and method of payment of the f r a n chise t a x w i l l as usual "be issued a t a l a t e r date by the Treasury Department. Very t r u l y yours, Walter L. Eddy, Secretary. TO CHAIRMEN OF ALL FEDERAL RESERVE BANKS. /
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