be determined in accordance with subdivision (ii) or (iii), as the case may be, of this subparagraph.

(ii) The renegotiable portion of a loss or gain with respect to depreciable or amortizable property is that portion which bears the same ratio to the whole of such loss or gain as the aggregate amount of depreciation or amortization on such property allocable to renegotiation statutes for all fiscal years of the contractor to the date of such loss or gain bears to the total amount of depreciation or amortization on such property allowable under section 23 (1) or 124A of the Internal Revenue Code, as the case may be, for all taxable years of the contractor to the date of such loss or gain.

(iii) The renegotiable portion of a loss or gain with respect to land other than an emergency facility is determined as follows:

(a) Allot an equal share of the loss or gain to each fiscal year beginning with the year of acquisition and including the year of the loss or gain;

(b) For each such fiscal year, determine approximately the percentage of use of the land in performing prime contracts and subcontracts subject to the 1948 and 1951 acts;

(c) Apply the appropriate percentage of use to each share determined under step (a) of this subdivision; and

(d) Add the amounts determined under step (c) of this subdivision. The sum of such amounts is the renegotiable portion of the loss or gain.

1459.6 Interest.-(a) Allowance.-Interest on borrowed capital is deductible under the Internal Revenue Code and will, therefore, be allowed in renegotiation to the extent allocable to renegotiable business.

(b) Allocation.-(1) Interest on borrowed funds will be allocated to renegotiable business according to the general principles set forth in section 1459.1 (b).

(2) However, if a contractor has an amount of unrestricted current funds, or marketable securities obviously in excess of the reasonable working capital needs of its business, or if there is a significant amount of assets not directly related to those operations. of the contractor which result in renegotiable business, consideration will be given to

these circumstances in the allocation of interest expense to renegotiable business.

(3) Premium or discount reflected in taxable income as the result of redemption or retirement of debt obligations will be reflected in interest expense for allocation purposes if such redemption or retirement is part of a normal program of debt reduction provided by the debt agreement or in accordance with a debt reduction program previously followed by the contractor. However, premium or discount on extraordinary debt retirement, or loss on purchase of debt obligations at a premium beyond the normal past practice of the contractor, will not be allowed as a cost. of renegotiable business.

(c) Interest on tax deficiences.-Interest on deficiencies in taxes measured by income (including Federal income and excess profits taxes) is not deemed allocable in any part to renegotiable business. Accordingly, such interest is not allowable as a cost of renegotiable business, notwithstanding that such interest is deductible in the computation of taxable income under the Internal Revenue Code.

1459.7 Selling and advertising expenses.(a) Selling.-(1) Selling expense will be allocated to renegotiable business only to the extent that (i) it relates in major part to technical, consulting and other services performed in connection with the application and adaptation of products comprising the renegotiable business to the uses and requirements of the Government or other contractors; or (ii) it relates to the maintenance of offices or agencies engaged in the servicing of products comprising the renegotiable business; or (iii) it relates to the sale of products or services comprising the renegotiable business which are of the type ordinarily sold or rendered by the contractor and which are sold or rendered through the distribution system normally used by the contractor; or (iv) it is a commission of the type allowed in section 1459.2 (c).

(2) The allocation of selling expenses to renegotiable business will be in accordance with the method of accounting found by the Board to be acceptable under section 1459.1 (b).

(b) Advertising in fiscal years ending on or before March 31, 1962.-Removed to Appendix.

(c) Advertising in fiscal years ending after March 31, 1962.-(1) Items of advertising expense incurred solely for (i) the recruitment by the contractor of personnel required for the performance by the contractor of obligations arising under a renegotiable contract or subcontract, (ii) the procurement of scarce items required by the contractor for the performance of a renegotiable contract or subcontract, or (iii) the disposal to scrap or surplus materials acquired by the contractor in the performance of a renegotiable contract or subcontract, are recognized as costs allocable to renegotiable business in accordance with the method of accounting found by the Board to be acceptable under § 1459.1 (b). The costs of publishing catalogues, technical pamphlets, house organs and other similar publications are not, for the purposes of this paragraph, considered advertising expenses; for the treatment of such expenses, see $1459.8 (f).

(2) Other advertising expense is allocable to renegotiable business as follows:

(i) In the case of renegotiable business performed under subcontracts, advertising expense will be allocated thereto provided that the products sold under such subcontracts are substantially the same as those sold in such subcontractor's normal commercial business. In the allocation of such advertising expense consideration will be given to (a) the volume of nonrenegotiable business in the year under review as contrasted with the subcontractor's normal volume of commercial business, and (b) the total amount of such advertising expense in the year under review as contrasted with the subcontractor's normal advertising expense.

(ii) In cases in which it can be demonstrated that a prime contractor or subcontractor engaged in renegotiable business to the detriment of its normal commercial business in the year under review, and thereby incurred the risk of loss of its competitive position in the industry concerned, the Board will allocate to renegotiable business that portion of the prime contractor's or subcontractor's normal advertising expense which the Board deems properly attributable to the effort by the prime contractor or subcontractor to forestall such loss of competitive position.

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Part 1460 Principles and Factors in Determining

Excessive Profits