# ASC 340-980-25: Other Assets and Deferred Costs — Regulated Operations — 25 Recognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/340/980/#25-recognition) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-09T23:59:52.933Z to 2026-09-09T23:59:52.933Z Record version: sha256:177f82a3f18420a0c3ed5df5278b3d3f3975fb8872376ffbb843681ccad5b022 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 340-980-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/340/980/#25-recognition) SEC content: no #### Effects of Regulation ##### [340-980-25-1](https://asc.understandingaccounting.org/asc/340/980/#340-980-25-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:59:52.933Z to 2026-09-09T23:59:52.933Z Record version: sha256:df3ae5a1e4c58f06af8ace762dc99cda3537e7d5efce7149bb35075d43df14dd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Rate actions of a regulator can provide reasonable assurance of the existence of an asset. An entity shall [capitalize](https://asc.understandingaccounting.org/glossary/c/#capitalize "Capitalize is used to indicate that the cost would be recorded as the cost of an asset. That procedure is often referred to as deferring a cost, and the resulting asset is sometimes described as a deferred cost.") all or part of an [incurred cost](https://asc.understandingaccounting.org/glossary/i/#incurred-cost "A cost arising from cash paid out or obligation to pay for an acquired asset or service, a loss from any cause that has been sustained and has been or must be paid for.") that would otherwise be charged to expense if both of the following criteria are met: 1. a It is probable (as defined in Topic 450) that future revenue in an amount at least equal to the capitalized cost will result from inclusion of that cost in [allowable costs](https://asc.understandingaccounting.org/glossary/a/#allowable-costs "All costs for which revenue is intended to provide recovery. Those costs can be actual or estimated. In that context, allowable costs include interest cost and amounts provided for earnings on shareholders' investments.") for rate-making purposes. 2. b Based on available evidence, the future revenue will be provided to permit recovery of the previously incurred cost rather than to provide for expected levels of similar future costs. If the revenue will be provided through an automatic rate-adjustment clause, this criterion requires that the regulator's intent clearly be to permit recovery of the previously incurred cost. A cost that does not meet these asset recognition criteria at the date the cost is incurred shall be recognized as a regulatory asset when it does meet those criteria at a later date. ##### [340-980-25-2](https://asc.understandingaccounting.org/asc/340/980/#340-980-25-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:59:52.933Z to 2026-09-09T23:59:52.933Z Record version: sha256:49bba16b0d774755e83fdbe2bf342493a7f5bafb9b85fdbd4d42d081430deb3f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a [phase-in plan](https://asc.understandingaccounting.org/glossary/p/#phase-in-plan "Any method of recognition of allowable costs in rates that meets all of the following criteria: The method was adopted by the regulator in connection with a major, newly completed plant of the regulated entity or of one of its suppliers or a major plant scheduled for completion in the near future. The method defers the rates intended to recover allowable costs beyond the period in which those allowable costs would be charged to expense under generally accepted accounting principles (GAAP) applicable to entities in general. The method defers the rates intended to recover allowable costs beyond the period in which those rates would have been ordered under the rate-making methods routinely used prior to 1982 by that regulator for similar allowable costs of that regulated entity.") is ordered by a regulator in connection with a plant on which no substantial physical construction had been performed before January 1, 1988, none of the allowable costs that are deferred for future recovery by the regulator under the plan for rate-making purposes shall be capitalized for general-purpose financial reporting purposes (hereinafter referred to as financial reporting). Allowable costs that are deferred for future recovery by the regulator under the plan consist of all allowable costs deferred for rate-making purposes under the plan beyond the period in which those allowable costs would be charged to expense under generally accepted accounting principles (GAAP) applicable to entities in general. ##### [340-980-25-3](https://asc.understandingaccounting.org/asc/340/980/#340-980-25-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:59:52.933Z to 2026-09-09T23:59:52.933Z Record version: sha256:d836d6e3b3a9bc5aba3414f7c8c6b1408110298d9ecb348dbca639122a89ec98 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a phase-in plan is ordered by a regulator in connection with a plant completed before January 1, 1988, or a plant on which substantial physical construction had been performed before January 1, 1988, the following criteria shall be applied to that plan. If the phase-in plan meets all of those criteria, all allowable costs that are deferred for future recovery by the regulator under the plan shall be capitalized for financial reporting as a separate asset (a deferred charge). If any one of those criteria is not met, none of the allowable costs that are deferred for future recovery by the regulator under the plan shall be capitalized for financial reporting. The criteria to determine whether capitalization is appropriate are: 1. a The allowable costs in question are deferred pursuant to a formal plan that has been agreed to by the regulator. 2. b The plan specifies the timing of recovery of all allowable costs that will be deferred under the plan. 3. c All allowable costs deferred under the plan are scheduled for recovery within 10 years of the date when deferrals begin. 4. d The percentage increase in rates scheduled under the plan for each future year is no greater than the percentage increase in rates scheduled under the plan for each immediately preceding year. That is, the scheduled percentage increase in Year 2 is no greater than the percentage increase granted in Year 1, the scheduled percentage increase in Year 3 is no greater than the scheduled percentage increase in Year 2, and so forth. ##### [340-980-25-4](https://asc.understandingaccounting.org/asc/340/980/#340-980-25-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:59:52.933Z to 2026-09-09T23:59:52.933Z Record version: sha256:209bb496040e7a65596e6f7a913c2926a18fc0e224eb693aabe1d10b9e7f50f0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Examples illustrate various circumstances that may or may not constitute phase-in plans: 1. a Example 1 (see paragraph [980-340-55-9](https://asc.understandingaccounting.org/asc/340/980/#340-980-55-9)) illustrates a sale with leaseback as a finance lease. 2. b Example 2 (see paragraph [980-340-55-12](https://asc.understandingaccounting.org/asc/340/980/#340-980-55-12)) illustrates a sale with leaseback as an operating lease. 3. c Example 3 (see paragraph [980-340-55-15](https://asc.understandingaccounting.org/asc/340/980/#340-980-55-15)) illustrates a sale with leaseback with profit recognition accelerated. 4. d Example 4 (see paragraph [980-340-55-18](https://asc.understandingaccounting.org/asc/340/980/#340-980-55-18)) illustrates the modified depreciation method. 5. e Example 5 (see paragraph [980-340-55-21](https://asc.understandingaccounting.org/asc/340/980/#340-980-55-21)) illustrates deferred costs before a rate order is issued. 6. f Example 7 (see paragraph [980-340-55-39](https://asc.understandingaccounting.org/asc/340/980/#340-980-55-39)) illustrates a phase-in plan for two plants completed at different times that share common facilities. ##### [340-980-25-5](https://asc.understandingaccounting.org/asc/340/980/#340-980-25-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:59:52.933Z to 2026-09-09T23:59:52.933Z Record version: sha256:aa74037f08c69d7334e2579e6671ce24a4ced037d99478526d2f239f96b8152b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If specified criteria are met, paragraph [980-340-25-1](https://asc.understandingaccounting.org/asc/340/980/#340-980-25-1) requires capitalization of an incurred cost that would otherwise be charged to expense. An allowance for earnings on shareholders' investment is not an incurred cost that would otherwise be charged to expense. Accordingly, such an allowance shall not be capitalized pursuant to that paragraph. The phrase _an allowance for earnings on shareholders' investment_, as used in this Subtopic, is intended to have the same meaning as the phrase _a designated cost of equity funds_, used in paragraph [980-835-30-1](https://asc.understandingaccounting.org/asc/835/980/#835-980-30-1) , which, in specified circumstances, requires capitalization of an allowance for earnings on shareholders' investment (a designated cost of equity funds) during construction. ##### [340-980-25-6](https://asc.understandingaccounting.org/asc/340/980/#340-980-25-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:59:52.933Z to 2026-09-09T23:59:52.933Z Record version: sha256:72e1daa50669e0639697f45625d7c538bda66daa8d4c204c71b33fa633760a42 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraphs [980-340-25-2 through 25-3](https://asc.understandingaccounting.org/asc/340/980/#340-980-25-2) require capitalization of an allowance for earnings on shareholders' investment for qualifying phase-in plans. If an allowance for earnings on shareholders' investment is capitalized for rate-making purposes other than during construction or as part of a phase-in plan, the amount capitalized for rate-making purposes shall not be capitalized for financial reporting. For the requirement to accrue a carrying charge related to the expected recovery of the investment in abandoned assets, see paragraph [980-360-35-7](https://asc.understandingaccounting.org/asc/360/980/#360-980-35-7).