- 30 Cost Recovery
Subject(C): Interest on Investment (IOI)
Purpose: To clarify the procedures for calculating and recording IOI
Authority: Planning Instruction No. 9x-03, Subject: Interest Rates for Fiscal Year 199x
U.S. Government Standard General Ledger (SGL), Treasury Financial Manual (TFM) Supplement
Contact: General Accounting and Technical Analysis Group (GATAG), Finance and Accounting Service, 445-3423.
The Regional Finance Offices are responsible for calculating and recording interest on investment (IOI) on an annual basis in accordance with the procedures in this Supplement, and the Attachments thereto.
Generally, the costs (original construction costs and costs of additions and replacements regardless of source of funds) allocated to reimbursable functions, except irrigation, are subject to IOI unless otherwise provided by law.
Interest on investment applies to the unamortized balance of costs (including movable property) allocated to power, municipal and industrial water, reimbursable recreation, reimbursable fish and wildlife, other interest-bearing reimbursable functions, and loans under the Small Reclamation Project Act of 1956 (70 Stat. 1044).
Where Reclamation and the Western Area Power Administration and/or the Corps of Engineers have interest-bearing investment on a project, close coordination will be required in computing IOI particularly in regard to any interest reduction for repayment during a fiscal year.
When allocations of multipurpose costs to interest-bearing functions change, prior years' IOI should be appropriately adjusted. This adjustment may be delayed until the final cost allocation is determined.
3. Base for Computation.
The base for computing IOI is the unamortized balance calculated from the Statement of Project Construction Cost and Repayment (reimbursable plant cost less repayments realized) for the function at the beginning of the fiscal year for which the interest is being computed.
4. When To Start Interest On Investment.
Interest on investment begins when interest during construction (IDC) terminates.
5. Termination of Interest.
Interest on investment continues until the investment is fully repaid.
6. Procedures For Computing Interest On Investment.
A. Average Unpaid Investment Balance Method. This method of computing IOI is applicable to the power investment and the municipal and industrial water investment to be repaid from income except on: the Boulder Canyon Project, the Colorado River Basin Project, and the Colorado River Storage Project and participating projects (since the authorizing legislation precludes it); and projects included in the Columbia River Federal Power System since the Bonneville Power Administration deposits surplus revenues in short-term interest-bearing investments. The interest earned on these investments is included in the amounts available for repayment.
The method assumes that net revenues, after the payment of interest, will be applied during the year to the repayment of the highest interest-bearing investment first. The interest on the investment being repaid will be recomputed in accordance with the procedures shown on Attachment A, Figure 1.
B. Other Methods. On the Boulder Canyon Project IOI will be based on the unrepaid advances from the Treasury in accordance with the authorizing legislation and be calculated using the interest rate prescribed by that legislation.
Interest on investment on the Colorado River Storage Project and participating projects, the Colorado River Basin Project, and projects in the Columbia River Basin Project will be calculated by multiplying the unrepaid investment at the beginning of the fiscal year by the applicable interest rate. Interest on other interest-bearing allocations which are not to be repaid from income will be paid under repayment contracts and will be calculated in accordance with the terms of the contract.
7. Related References.
A. Procedures for Computing Spreadsheet
Figure 1 Example of Computation - Interest-Bearing Reimbursable Investment
B. Recording IOI in the Accounts