{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/360/980/#55-implementation-guidance-and-illustrations","source":"FASB Accounting Standards Codification, Basic View","usage":"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.","topic":"360","topic_title":"Property, Plant, and Equipment","subtopic":"360-980","subtopic_title":"Regulated Operations","section":{"number":"55","label":"55 Implementation Guidance and Illustrations","anchor":"55-implementation-guidance-and-illustrations","is_sec":false,"groups":[{"block":null,"heading":"Illustrations","paragraphs":[{"citation":"360-980-55-1","para":"55-1","html":"
Cases similar to those illustrated in this Section may involve income tax effects that could accrue to the utility in question. Under Subtopic 740-10, the tax effects of temporary differences are measured based on enacted tax laws and rates and are recognized based on specified criteria.
","snippet":"Cases similar to those illustrated in this Section may involve income tax effects that could accrue to the utility in question. Under Subtopic 740-10, the tax effects of temporary differences are measured based on enacte…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ed1266569bb1bc92c0076249f0095fe6e13a17a36091e4595e0c9a7599cc7bef","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-2","para":"55-2","html":"
This Example illustrates how a loss on an abandonment should be computed under the guidance in Section 450-20-55 and paragraphs
980-360-35-9 through 35-11
by an entity that has applied Subtopic 740-10. The Example is based on specific rate actions related to the abandonment and on the other assumptions stated. The computations may need to be changed to reflect the economic effects of different fact situations.
","snippet":"This Example illustrates how a loss on an abandonment should be computed under the guidance in Section 450-20-55 and paragraphs 980-360-35-9 through 35-11 by an entity that has applied Subtopic 740-10. The Example is bas…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c33045d04145f493843c0399e9963dec499a3525f3b99d07217c06619165105c","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-3","para":"55-3","html":"
The principal assumptions on which the Example is based are as follows:
  1. a
    Upon initial application of Subtopic 740-10, an entity that meets the criteria of paragraph 980-10-15-2 for application of this Topic will adjust its deferred income tax liabilities as required. This Example is presented as though the entity has already applied Subtopic 740-10 prior to the date of the abandonment. If an entity initially applies that Subtopic after a loss has been recognized on an abandonment and before the end of the recovery period for any recoverable costs, the amount of the previously recognized loss may change. The amount of that loss will change if the tax rate used in the initial net-of-tax discount rate under that Subtopic is different from that used by the entity previously. Once that Subtopic is initially applied, the accounting for the abandonment should follow the approach described in this Example.
  2. b
    This Example assumes a tax rate of 34 percent.
  3. c
    Utility A decides to abandon a plant that has been under construction for some time. Although the possibility of abandoning the plant has been under consideration, abandonment was not considered probable before the actual decision was made.
  4. d
    Immediately before the abandonment, the recorded assets for the plant and related deferred income tax liabilities are as follows.
    • \"
      Assets Deferred Income Tax Liabilities Recorded plant and related deferred income tax liabilities \" $750,500,000 \" \" $85,170,000 \" Asset representing revenue that will be provided for payment of income taxes and related deferred income tax liabilities \" 76,015,152 \" \" 25,845,152 \" Total\t\" $826,515,152 \" \" $111,015,152 \"
  5. e
    For income tax purposes, the abandoned plant has a basis of $500 million at the date of the abandonment.
  6. f
    Utility A will deduct the remaining tax basis of the abandoned plant ($500,000,000) as an abandonment loss on its income tax return in the year of the abandonment and will receive a tax benefit of 34 percent of the tax basis of the plant ($170,000,000). Utility A operates in a state that has no state income taxes. The federal income tax rate is 34 percent.
  7. g
    Accounting pretax income before the loss on the abandonment and taxable income before any deduction for the loss on the abandonment are both $1,500,000,000. Utility A has no other temporary differences or tax credits.
  8. h
    Utility A operates solely in a single-state jurisdiction.
  9. i
    In the past, Utility A's regulator has permitted recovery of amounts prudently invested in abandoned plants over an extended period of time without a return on unrecovered investment during the recovery period.
  10. j
    The normal practice of Utility A's regulator is to allocate deferred income taxes to assets on which return on investment is disallowed. Deferred taxes allocated to assets excluded from the rate base are not deducted from the rate base for purposes of computing allowable return on investment.
  11. k
    Utility A's regulator normally treats income taxes that were not previously provided as allowable costs if they result from recovery of other allowable costs.
  12. l
    Utility A's incremental borrowing rate at the date of the decision to abandon the plant is 14 percent, interest payable monthly.
  13. m
    Utility A believes that it is probable that recovery of cost without return on investment during the recovery period will be granted over a period that will not be less than 5 years nor more than 10 years, but it has no basis for estimating the exact time period that the regulator will select.
  14. n
    At the date of the abandonment, Utility A believes that it will take approximately 18 months to obtain a rate order covering the abandoned plant.
  15. o
    No disallowance of recorded cost is expected.
  16. p
    A rate order covering the abandoned plant is received in the 18th month following the abandonment. There is no disallowance of recorded costs of the abandoned plant. Those recorded costs are to be recovered over 60 months commencing in the 19th month after abandonment.
","snippet":"The principal assumptions on which the Example is based are as follows:\n(a) Upon initial application of Subtopic 740-10, an entity that meets the criteria of paragraph 980-10-15-2 for application of this Topic will adjus…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1a6997d4476cc68ba0cf5f56e319353526f1ac4e821905cf0e611e7a0c7b51f1","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-4","para":"55-4","html":"
Because the amount of deferred taxes related to the remaining investment is both a component of the net investment on which return would be based in the regulatory process and based on the amount of the accounting loss on the abandonment (which is based on the present value of the net investment), the present value of the net investment cannot be derived through a simple present value calculation using a pretax rate. That present value could be derived through a series of iterative calculations, starting with an assumed loss and the resulting deferred tax amounts, then computing the accrual of return on investment and amortization by applying the pretax rate to the resulting net investment, and then computing the income tax effects of the resulting pretax income. Using the remaining asset at the end of the recovery period, the estimate of the loss could be refined until the accrual of a return, amortization, recovery of recorded costs, and the related tax effects resulted in a zero net asset at the end of the recovery period. Alternatively, the net loss can be initially computed based on a present value calculation using an after-tax rate. While that approach is used in this Example, either approach will provide the same result. The following paragraphs illustrate how that approach can be used and the resulting computations of loss recognition, return to be accrued, and amortization.
","snippet":"Because the amount of deferred taxes related to the remaining investment is both a component of the net investment on which return would be based in the regulatory process and based on the amount of the accounting loss o…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:11b23182552ef58c14312ead40bc2dc9b0e9a84db94e16e983af11624495a855","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-5","para":"55-5","html":"
When the abandonment becomes probable (in this case, at the date of the decision to abandon), Utility A should remove the recorded cost of the plant from the construction work-in-process accounts. Any disallowance of the recorded cost that is probable and can be reasonably estimated should also be recorded as a loss. There is none in this Example. Utility A should record a separate new asset, representing the future revenues expected to result from the regulator's treatment of the cost of the abandoned plant, at the present value of those expected future revenues.
","snippet":"When the abandonment becomes probable (in this case, at the date of the decision to abandon), Utility A should remove the recorded cost of the plant from the construction work-in-process accounts. Any disallowance of the…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0216b0b8466f75dfe3330367141b6d39a728ec9d66b21937103e95d3daff0632","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-6","para":"55-6","html":"
The next step is to compute the deferred income tax liabilities that would be recorded if the tax consequences of the abandonment were recognized before any loss related to the disallowance of return on investment were recognized. When the tax basis of the abandoned plant is deducted as an abandonment loss on the current year's tax return, an additional $500,000,000 of the recorded cost of the asset will be without tax basis. Recovery of that additional amount will result in $500,000,000 of taxable income. The deferred income tax liability on that amount should be computed in accordance with Subtopic 740-10. This Example assumes that the rate is the statutory rate of 34 percent and that Utility A should recognize additional deferred income tax liabilities of $170,000,000.
","snippet":"The next step is to compute the deferred income tax liabilities that would be recorded if the tax consequences of the abandonment were recognized before any loss related to the disallowance of return on investment were r…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ac066300a5abf86d1b66f107e29323199b72b97cd512142c1e36bb46320f5945","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-7","para":"55-7","html":"
The amount of tax benefit that resulted from the current deduction of the abandonment loss is also $170,000,000, so no additional asset representing revenue that will be provided for the payment of income taxes should be recognized. Thus, the recorded balance sheet items related to the plant after the abandonment, but before any loss for disallowance of return on investment is recognized, and the resulting net investment should be as follows.
","snippet":"The amount of tax benefit that resulted from the current deduction of the abandonment loss is also $170,000,000, so no additional asset representing revenue that will be provided for the payment of income taxes should be…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2d6608055543ac104cfb036c93d01648913de588474192660dd1bcff5eef9dc7","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-8","para":"55-8","html":"
If the computed additional deferred income tax liabilities did not equal the tax benefit that resulted from the abandonment loss, the difference should be recorded as an adjustment of the asset representing revenue that will be provided for the payment of income taxes.
","snippet":"If the computed additional deferred income tax liabilities did not equal the tax benefit that resulted from the abandonment loss, the difference should be recorded as an adjustment of the asset representing revenue that …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a6eb35763faec0a0026fb8541256b9ef39e7e8c52488a1616af6caf101a79c14","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-9","para":"55-9","html":"
The cash flows provided to recover the asset should be estimated to begin in 19 months. For purposes of computing the present value of the net investment, the probable future after-tax revenues would be estimated at $9,091,667 per month for 5 years (based on an assumed straight-line recovery of the net investment over the 5-year minimum period within the range— $545,500,000/60). The discount rate used should be 9.24 percent (14 percent net of tax at the rate computed in paragraph 980-360-55-6). The computation of the amount to be recorded for the new asset and of the loss resulting from the abandonment would be as follows.
","snippet":"The cash flows provided to recover the asset should be estimated to begin in 19 months. For purposes of computing the present value of the net investment, the probable future after-tax revenues would be estimated at $9,0…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4208e3fa725fb5f68397b1eb600f0437cc00a1f7f214e64d9c6f8d7859eafb0f","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-10","para":"55-10","html":"
The net loss should be allocated between the new asset resulting from the abandonment and the existing deferred taxes based on the relationship between the investment (100 percent), deferred taxes (34 percent, computed as $281,015,152/$826,515,152), and the net investment (66 percent). The computation would be as follows.
","snippet":"The net loss should be allocated between the new asset resulting from the abandonment and the existing deferred taxes based on the relationship between the investment (100 percent), deferred taxes (34 percent, computed a…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:cd0a45a723fc0c7777f05ecbe39c6c4fbe994f6034412cd5edcc564f05181807","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-11","para":"55-11","html":"
Pending receipt of a rate order, Utility A should accrue carrying charges on the net recorded asset at a monthly rate of 1/12 of 14 percent. Taxes should be provided on those accrued carrying charges based on the rate required to adjust the accumulated deferred income tax liabilities to the amounts required by Subtopic 740-10. Usually, that rate will be the statutory rate. The following table illustrates those computations based on the statutory rate.
","snippet":"Pending receipt of a rate order, Utility A should accrue carrying charges on the net recorded asset at a monthly rate of 1/12 of 14 percent. Taxes should be provided on those accrued carrying charges based on the rate re…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d77248d82d40c9717447cccdbb498e573a9d87e3be18c80d051c3c4a6ac7257a","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-12","para":"55-12","html":"
Based on the rate order (see paragraph 980-360-55-3(n)), revenues actually allowed would be $13,775,253 per month ($826,515,152/60). Earnings should continue to be recognized each month equal to 1/12 of 14 percent of the remaining net investment, and taxes should continue to be provided on those earnings at the rate required to adjust the recorded deferred income tax liabilities to the amount required by Subtopic 740-10. Usually that rate would be the statutory rate. The following table illustrates those computations using the 34 percent statutory rate.
","snippet":"Based on the rate order (see paragraph 980-360-55-3(n)), revenues actually allowed would be $13,775,253 per month ($826,515,152/60). Earnings should continue to be recognized each month equal to 1/12 of 14 percent of the…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c4d8da80486913f35922bd794462039bc68c82eee50268a4f33fcdb8f8d45c8e","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-13","para":"55-13","html":"
In the event of a change in tax rates, the accumulated deferred income tax liabilities should be adjusted to the computed liability at the new rates. If the change in tax rates causes a reduction of the recorded deferred income tax liability, that reduction would usually result in a reduction of the recorded asset representing revenue that will be provided for payment of income taxes. If the change in tax rates causes an increase of the recorded deferred income tax liability, that increase would usually result in an increase of the recorded asset representing revenue that will be provided for payment of income taxes. However, the regulator's expected rate actions could change that result.
","snippet":"In the event of a change in tax rates, the accumulated deferred income tax liabilities should be adjusted to the computed liability at the new rates. If the change in tax rates causes a reduction of the recorded deferred…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c3053612c689f69f1d7360ba26b3e73c9d06c782360220b1ce4eb4566d7663b6","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-14","para":"55-14","html":"
This Example illustrates the guidance in paragraphs
980-360-35-12 through 35-14
.
","snippet":"This Example illustrates the guidance in paragraphs 980-360-35-12 through 35-14.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f780b5b1b4b766eb3fe07053e4ab53ccc50b6abb62809ef951ea644f4531cbb1","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-15","para":"55-15","html":"
This Example assumes a tax rate of 34 percent.
","snippet":"This Example assumes a tax rate of 34 percent.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:70191ea106967b46b2c009073f8e8c7cb72e5863df98ff6cd85c2b8e11deabe3","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-16","para":"55-16","html":"
Assume that Utility B operates in two state jurisdictions. After an extensive prudence investigation, the regulator in one of those state jurisdictions disallows $865 million of the $3.6 billion total cost of Utility B's recently completed nuclear generating plant. That state jurisdiction represents approximately 50 percent of Utility B's operations, and approximately 50 percent of the output of the recently completed plant is expected to be used in that state. The tax basis of the plant is $2.4 billion. The regulator indicates that the tax benefit from a ratable portion of depreciation will be given to the shareholders as a result of the disallowance. After consultation with counsel, Utility B decides that it should not appeal the regulator's disallowance. The regulator in Utility B's other state jurisdiction has not participated in the prudence investigation, and there is no indication that a similar disallowance is likely in that jurisdiction.
","snippet":"Assume that Utility B operates in two state jurisdictions. After an extensive prudence investigation, the regulator in one of those state jurisdictions disallows $865 million of the $3.6 billion total cost of Utility B's…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8c604dfb8890db366b0d028487ddee3dd0af87e241720f5aeaa1f79da7c89c87","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-17","para":"55-17","html":"
Utility B should recognize the effective disallowance as a loss. Because only 50 percent of the plant's cost will be recoverable from customers in the state, the effective disallowance is 50 percent of the amount disallowed, or $432.5 million. The disallowance should be recognized when the disallowance is probable and the amount of the disallowance can be reasonably estimated, and those conditions are met in this case. The tax benefit of the loss will be realized as future depreciation is taken for income tax purposes. Since the tax benefit of the plant is based on $2.4 billion and the cost of the plant prior to the disallowance is $3.6 billion, only two-thirds of the loss is available for tax benefit. A deferred tax benefit, based on two-thirds of the loss, can be recognized when the loss is recognized providing that benefit meets the criteria of Subtopic 740-10 for recognition.
","snippet":"Utility B should recognize the effective disallowance as a loss. Because only 50 percent of the plant's cost will be recoverable from customers in the state, the effective disallowance is 50 percent of the amount disallo…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a5e7b3849cd8dcf1c9d23d7aee26de356ee4772abf1c5c871b6a851a1aaa7b38","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-18","para":"55-18","html":"
This Example illustrates the guidance in paragraphs
980-360-35-12 through 35-14
.
","snippet":"This Example illustrates the guidance in paragraphs 980-360-35-12 through 35-14.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:41b88ca2af7ce21eca1637024fdfec8a9b4483757c34b80b4e53671c12817af5","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-19","para":"55-19","html":"
This Example assumes a tax rate of 34 percent.
","snippet":"This Example assumes a tax rate of 34 percent.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d4e60619a0c12c700f7c353633f5eb84a8ce29f448dc7362b73bc8ccc5024c0d","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-20","para":"55-20","html":"
Assume that Utility C, which operates solely in one state jurisdiction, is constructing a new electric generating plant. Completion is expected to take approximately one year. The cost of the plant, which was originally expected to be $1.25 billion, is now estimated to be as follows.
","snippet":"Assume that Utility C, which operates solely in one state jurisdiction, is constructing a new electric generating plant. Completion is expected to take approximately one year. The cost of the plant, which was originally …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:fc786599794d15176827dc530ed5e67dab5b9dbdf45198bb2d6332bee799ea37","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-21","para":"55-21","html":"
Various parties have charged that certain cost increases were a result of imprudent management of the construction.
","snippet":"Various parties have charged that certain cost increases were a result of imprudent management of the construction.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:aeac6f8323afe1e9e11490060dca70dd29b3656d6c78bfa8136b54df8bebe491","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-22","para":"55-22","html":"
To avoid the cost and time delay that would be involved in a full-scale prudence investigation of the construction of the plant, Utility C and its regulator agree that the total cost of the plant that will be allowable in determining depreciation and that will be allowed in Utility C's rate base will be $3.4 billion. If the eventual cost of the plant exceeds that cap, a ratable portion of the tax benefit of depreciation will accrue to the benefit of the shareholders. For tax purposes, the plant is expected to have a net depreciable basis of $2.0 billion.
","snippet":"To avoid the cost and time delay that would be involved in a full-scale prudence investigation of the construction of the plant, Utility C and its regulator agree that the total cost of the plant that will be allowable i…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:eb82d20af9eaa3169f6d1192b137cc6487bccceafd7a85dcd517c05192c20740","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-23","para":"55-23","html":"
The loss that results from the disallowance inherent in the cost cap would be computed as follows.
","snippet":"The loss that results from the disallowance inherent in the cost cap would be computed as follows.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2768e9effefbe2333edda1d07d0a76cd9b0d3ff624d4de07f6386eefe8f734ff","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-24","para":"55-24","html":"
After the loss is recognized, an allowance for funds used during construction would continue to be recorded based on the remaining recorded costs. Subsequently, if additional increases in the cost of the plant become probable and those costs are not allowable under the agreed cost cap, those increases would also be recognized as losses from disallowances when they become probable.
","snippet":"After the loss is recognized, an allowance for funds used during construction would continue to be recorded based on the remaining recorded costs. Subsequently, if additional increases in the cost of the plant become pro…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b0921e6eec7cc1c4f3f74d8afaed5d5b9157ab4f48e29f72fcc508fc253527ed","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-25","para":"55-25","html":"
If the regulator ordered a cost cap that Utility C did not agree to, Utility C would have to assess whether the criteria of Topic 450 for loss recognition are met. If those criteria are met, the accounting would be as indicated above. Otherwise, no loss would be recognized until that loss was probable and could be reasonably estimated. Because of the possible disallowance inherent in the cost cap, it may no longer be probable that some amount of allowance for funds used during construction will be included in allowable costs in the future, and that amount may be reasonably estimable. In that case, that amount of allowance for funds used during construction would not be capitalized.
","snippet":"If the regulator ordered a cost cap that Utility C did not agree to, Utility C would have to assess whether the criteria of Topic 450 for loss recognition are met. If those criteria are met, the accounting would be as in…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5d2cfdf47e19304a73ebd9afb772039c3dcaa7dd4f1385009de4412d713917bb","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-26","para":"55-26","html":"
This Example illustrates the guidance in paragraphs
980-360-35-12 through 35-14
.
","snippet":"This Example illustrates the guidance in paragraphs 980-360-35-12 through 35-14.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:560776ba34fe97ec481c62962ea5f32448026119050ab08530a37e0bdba53a94","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-27","para":"55-27","html":"
Assume that Utility D operates solely in a single-state jurisdiction. On January 1, 19X1, Utility D's new electric generating plant becomes operational. The cost of that plant is $1 billion.
","snippet":"Assume that Utility D operates solely in a single-state jurisdiction. On January 1, 19X1, Utility D's new electric generating plant becomes operational. The cost of that plant is $1 billion.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:bcf093d8aac49c46650f70da993714d2cf9417f41ed5a93030d65a41ea64f754","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-28","para":"55-28","html":"
Utility D's regulator concludes that part of the cost of the recently completed plant was imprudently incurred. However, rather than disallow the specific costs that were imprudent, the regulator instead excludes 10 percent ($100 million) of the plant from the rate base, thereby providing no return on investment on that portion of the plant. The regulator does not intend any part of the tax benefit of depreciation to accrue to the benefit of Utility D's shareholders. The regulator indicates that the exclusion of 10 percent of the plant's cost from the rate base is intended to be permanent. The utility concludes that it will not appeal the disallowance after considering the likely outcome of an appeal.
","snippet":"Utility D's regulator concludes that part of the cost of the recently completed plant was imprudently incurred. However, rather than disallow the specific costs that were imprudent, the regulator instead excludes 10 perc…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a5b1eb07f356d2a5c3ee2bf639ca0944cae2a9180114ff6f118b78ff6ecc5b75","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-29","para":"55-29","html":"
Utility D should record the indirect disallowance as a loss and should estimate the amount of that loss using the best available information. If the regulator specifies the amount of cost that was imprudent, that amount may be the best estimate of the loss. Otherwise, Utility D would have to estimate the future cash flows that have been disallowed as a result of the order and determine the effective disallowance by computing the present value of those disallowed future cash flows. Since both the disallowed future cash flows and the appropriate discount rate to compute the present value would be estimates, those estimates should be calculated on a consistent basis. Accordingly, if the future cash flows are estimated based on the current weighted-average overall cost of Utility D's capital, that weighted-average overall cost of capital should also be used as the discount rate. The loss has no tax benefit to Utility D.
","snippet":"Utility D should record the indirect disallowance as a loss and should estimate the amount of that loss using the best available information. If the regulator specifies the amount of cost that was imprudent, that amount …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7fc2cf68d1a270c469938c37b83d92a4727e2860fef1231570b7fd96238421fa","downloaded_from":"2026-09-10T00:13:17.858Z","last_downloaded_at":"2026-09-10T00:13:17.858Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147477641","source_sha256":"9de72cca05ef40200f310fec7441773e53308d924d7d5b782e1990d8e221fddf"}},{"citation":"360-980-55-30","para":"55-30","html":"
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