{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/740/980/#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":"740","topic_title":"Income Taxes","subtopic":"740-980","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":"Implementation Guidance","paragraphs":[{"citation":"740-980-55-1","para":"55-1","html":"
Paragraph 980-340-25-1 requires a regulated entity that applies this Topic to capitalize an incurred cost that would otherwise be charged to expense if the following criteria are met:
  1. a
    It is probable that future revenue in an amount at least equal to the capitalized cost will result from inclusion of that cost in allowable costs 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 income taxes that result from recording a deferred tax liability in accordance with Subtopic 740-10 meet those criteria, an asset is recognized for those income taxes when the deferred tax liability is recognized. That asset and the deferred tax liability are not offset for general-purpose financial reporting; rather, each is displayed separately.
","snippet":"Paragraph 980-340-25-1 requires a regulated entity that applies this Topic to capitalize an incurred cost that would otherwise be charged to expense if the following criteria are met:\n(a) It is probable that future reven…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3941b32b238badd60baed3a4968f3f6e96928a849aaa5b4fb748c3211f3d974c","downloaded_from":"2026-09-10T01:21:51.112Z","last_downloaded_at":"2026-09-10T01:21:51.112Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479086","source_sha256":"4622dbf7b534d7d7b4ba70e5159fc02076f153703ba1bcfb533c08a2be6a7046"}},{"citation":"740-980-55-2","para":"55-2","html":"
When a loss on abandonment is recognized, the amount of deferred income taxes related to the remaining asset shall be determined as indicated in the following guidance.
","snippet":"When a loss on abandonment is recognized, the amount of deferred income taxes related to the remaining asset shall be determined as indicated in the following guidance.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:862a37edc5f0c5309ce30f0a60bcc07493ce962810117364c31d23e4d484dc73","downloaded_from":"2026-09-10T01:21:51.112Z","last_downloaded_at":"2026-09-10T01:21:51.112Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479086","source_sha256":"4622dbf7b534d7d7b4ba70e5159fc02076f153703ba1bcfb533c08a2be6a7046"}},{"citation":"740-980-55-3","para":"55-3","html":"
While under construction, a utility's plant has a recorded cost that consists of the following three separate elements for income tax purposes:
  1. a
    Costs that will be deductible in the future, either as depreciation or (in the event that the plant is abandoned) as an abandonment loss
  2. b
    Costs that have been deducted in the past
  3. c
    Costs that are never deductible (the allowance for equity funds used during construction).
","snippet":"While under construction, a utility's plant has a recorded cost that consists of the following three separate elements for income tax purposes:\n(a) Costs that will be deductible in the future, either as depreciation or (…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1bfb87140aa9657382a2b960d1db699c4879da9ff84f8dcf3a049d264a870673","downloaded_from":"2026-09-10T01:21:51.112Z","last_downloaded_at":"2026-09-10T01:21:51.112Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479086","source_sha256":"4622dbf7b534d7d7b4ba70e5159fc02076f153703ba1bcfb533c08a2be6a7046"}},{"citation":"740-980-55-4","para":"55-4","html":"
An abandonment loss generally is deductible for federal income tax purposes when the abandonment occurs. That tax deduction is allowed without regard to the rate-making treatment applied to the recorded cost of the abandoned plant.
","snippet":"An abandonment loss generally is deductible for federal income tax purposes when the abandonment occurs. That tax deduction is allowed without regard to the rate-making treatment applied to the recorded cost of the aband…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7a39c3f20a955eddb25866b441cf804e1824405440a6715a20c32e6df544593b","downloaded_from":"2026-09-10T01:21:51.112Z","last_downloaded_at":"2026-09-10T01:21:51.112Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479086","source_sha256":"4622dbf7b534d7d7b4ba70e5159fc02076f153703ba1bcfb533c08a2be6a7046"}},{"citation":"740-980-55-5","para":"55-5","html":"
When a regulator is expected to provide recovery of the cost of an abandoned plant without return on investment, Subtopic 980-360 requires a portion of the cost of the abandoned plant to be recognized as a loss, equivalent to the present value of the effective disallowance of return on investment.
","snippet":"When a regulator is expected to provide recovery of the cost of an abandoned plant without return on investment, Subtopic 980-360 requires a portion of the cost of the abandoned plant to be recognized as a loss, equivale…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6a5bf00f036bbc6d86cdee93b2d444e9f50433c1b6f6395fad6d51c1ea6bf5c2","downloaded_from":"2026-09-10T01:21:51.112Z","last_downloaded_at":"2026-09-10T01:21:51.112Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479086","source_sha256":"4622dbf7b534d7d7b4ba70e5159fc02076f153703ba1bcfb533c08a2be6a7046"}},{"citation":"740-980-55-6","para":"55-6","html":"
Deferred income tax liabilities, related to the remaining asset and the recovery of a separate asset recognized to reflect the future revenue that is expected to be provided in rates by the regulator when the income taxes become payable, shall be recorded under the requirements of Subtopic 740-10.
","snippet":"Deferred income tax liabilities, related to the remaining asset and the recovery of a separate asset recognized to reflect the future revenue that is expected to be provided in rates by the regulator when the income taxe…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8f6df4ac3d09f9f7267b27f460717c8e27cf1af1f4678014c4bd127cfa21a731","downloaded_from":"2026-09-10T01:21:51.112Z","last_downloaded_at":"2026-09-10T01:21:51.112Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479086","source_sha256":"4622dbf7b534d7d7b4ba70e5159fc02076f153703ba1bcfb533c08a2be6a7046"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:faa87e1fb48bb6452eb4830b19e9cb8850a25ec50076d888bb14d4baeedac7f9","downloaded_from":"2026-09-10T01:21:51.112Z","last_downloaded_at":"2026-09-10T01:21:51.112Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479086","source_sha256":"4622dbf7b534d7d7b4ba70e5159fc02076f153703ba1bcfb533c08a2be6a7046"}},{"block":null,"heading":"Illustrations","paragraphs":[{"citation":"740-980-55-7","para":"55-7","html":"
All the Examples assume that the entity meets the criteria in paragraph 980-10-15-2 for the application of this Topic by the entity.
","snippet":"All the Examples assume that the entity meets the criteria in paragraph 980-10-15-2 for the application of this Topic by the entity.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:480e5237639ff5d37ee9c1cd5c8bf9ed3cb2224f919d96c4204fe6df86788a55","downloaded_from":"2026-09-10T01:21:51.112Z","last_downloaded_at":"2026-09-10T01:21:51.112Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479086","source_sha256":"4622dbf7b534d7d7b4ba70e5159fc02076f153703ba1bcfb533c08a2be6a7046"}},{"citation":"740-980-55-8","para":"55-8","html":"
This Example illustrates the guidance in paragraphs
980-740-25-1 through 25-2
. The following Cases illustrate the recognition of an asset related to a deferred tax liability:
  1. a
    Recognition of an asset for the probable future revenue to recover future income taxes related to the deferred tax liability for the equity component of the allowance for funds used during construction (Case A)
  2. b
    A subsequent adjustment of deferred tax liability for an enacted change in tax rates (Case B).
","snippet":"This Example illustrates the guidance in paragraphs 980-740-25-1 through 25-2. The following Cases illustrate the recognition of an asset related to a deferred tax liability:\n(a) Recognition of an asset for the probable …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f64fd367e6b32b61e923bc86d3384f7c872d4ed23cdfa4a6550beff801bfc7d9","downloaded_from":"2026-09-10T01:21:51.112Z","last_downloaded_at":"2026-09-10T01:21:51.112Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479086","source_sha256":"4622dbf7b534d7d7b4ba70e5159fc02076f153703ba1bcfb533c08a2be6a7046"}},{"citation":"740-980-55-9","para":"55-9","html":"
Cases A and B share all of the following assumptions:
  1. a
    During Year 1, the first year of operations, total construction costs for financial reporting and tax purposes are $400,000 (exclusive of the allowance for funds used during construction).
  2. b
    The enacted tax rate is 34 percent for all future years.
  3. c
    Allowance for funds used during construction (consisting entirely of the equity component) is $26,000. The asset for probable future revenue to recover the related income taxes is calculated as follows:
    • 34 percent of ($26,000 + A) = A (where A equals the asset for probable future revenue)
  4. d
    A = $13,394.
","snippet":"Cases A and B share all of the following assumptions:\n(a) During Year 1, the first year of operations, total construction costs for financial reporting and tax purposes are $400,000 (exclusive of the allowance for funds …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9e846a4f31411043bb051e5ff92e030108dbf3eb0dc66f637f8f9ae904b90547","downloaded_from":"2026-09-10T01:21:51.112Z","last_downloaded_at":"2026-09-10T01:21:51.112Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479086","source_sha256":"4622dbf7b534d7d7b4ba70e5159fc02076f153703ba1bcfb533c08a2be6a7046"}},{"citation":"740-980-55-10","para":"55-10","html":"
At the end of Year 1, the related accounts are as follows.
","snippet":"At the end of Year 1, the related accounts are as follows.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:bf5d84088e3791c32f6d2d3748035d744b59a8031ed16e6d6c08005dc73f1b29","downloaded_from":"2026-09-10T01:21:51.112Z","last_downloaded_at":"2026-09-10T01:21:51.112Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479086","source_sha256":"4622dbf7b534d7d7b4ba70e5159fc02076f153703ba1bcfb533c08a2be6a7046"}},{"citation":"740-980-55-11","para":"55-11","html":"
In this Case, if the allowance for funds used during construction had consisted entirely of a net-of-tax debt component in the amount of $26,000, the related accounts and their balances at the end of Year 1 would be construction in progress in the amount of $439,394 and a deferred tax liability in the amount of $13,394.
","snippet":"In this Case, if the allowance for funds used during construction had consisted entirely of a net-of-tax debt component in the amount of $26,000, the related accounts and their balances at the end of Year 1 would be cons…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:acacbf09bff1e6f8c4db068d7ad5fd04e2edb7c415d8a931c76257c01db72ddd","downloaded_from":"2026-09-10T01:21:51.112Z","last_downloaded_at":"2026-09-10T01:21:51.112Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479086","source_sha256":"4622dbf7b534d7d7b4ba70e5159fc02076f153703ba1bcfb533c08a2be6a7046"}},{"citation":"740-980-55-12","para":"55-12","html":"
This Case illustrates adjustment of a deferred tax liability for an enacted change in tax rates. In this Case, a change in the tax rate from 34 percent to 30 percent is enacted on the first day of Year 2. As of the first day of Year 2, the related accounts are adjusted so that the balances are as follows.
","snippet":"This Case illustrates adjustment of a deferred tax liability for an enacted change in tax rates. In this Case, a change in the tax rate from 34 percent to 30 percent is enacted on the first day of Year 2. As of the first…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8985785fed9c0552527cda0c34ebb1c331ebefe22e04c3de856dc73be54c250c","downloaded_from":"2026-09-10T01:21:51.112Z","last_downloaded_at":"2026-09-10T01:21:51.112Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479086","source_sha256":"4622dbf7b534d7d7b4ba70e5159fc02076f153703ba1bcfb533c08a2be6a7046"}},{"citation":"740-980-55-13","para":"55-13","html":"
This Example illustrates adjustment of a deferred tax liability for an enacted change in tax rates when that deferred tax liability represents amounts already collected from customers for the future payment of income taxes discussed in paragraphs
980-740-25-1 through 25-2
. In that case, there would be no asset for probable future revenue. This Example has the following assumptions:
  1. a
    Amounts at the end of Year 1, the current year, are as follows.
    • \"
      Construction in progress for financial reporting \" $400,000 \" Tax basis of construction in progress \" $300,000 \" \"Deferred tax liability (34 percent of $100,000)\" \" $34,000 \"
  2. b
    A change in the tax rate from 34 percent to 30 percent is enacted on the first day of Year 2. As a result of the reduction in tax rates, it is probable that $4,000 of the $34,000 (previously collected from customers for the future payment of income taxes) will be refunded to customers, together with the tax benefit of that refund, through a future rate reduction. The liability for the future rate reduction to refund a portion of the deferred taxes previously collected from customers is calculated as follows:
    • $4,000 + (30 percent of R) = R (where R equals the probable future reduction in revenue)
  3. c
    R = $5,714.
","snippet":"This Example illustrates adjustment of a deferred tax liability for an enacted change in tax rates when that deferred tax liability represents amounts already collected from customers for the future payment of income tax…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a4f6ab039f4920f6ca86e47c7c083f1e418889c9c319d102aecc24845d709469","downloaded_from":"2026-09-10T01:21:51.112Z","last_downloaded_at":"2026-09-10T01:21:51.112Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479086","source_sha256":"4622dbf7b534d7d7b4ba70e5159fc02076f153703ba1bcfb533c08a2be6a7046"}},{"citation":"740-980-55-14","para":"55-14","html":"
As of the first day of Year 2, the related accounts are adjusted so that the balances are as follows.
","snippet":"As of the first day of Year 2, the related accounts are adjusted so that the balances are as follows.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:626c79b3360c5f3f0345a1c95d3e1ad955eb3a692fdbe6ab615c66bc333538f1","downloaded_from":"2026-09-10T01:21:51.112Z","last_downloaded_at":"2026-09-10T01:21:51.112Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479086","source_sha256":"4622dbf7b534d7d7b4ba70e5159fc02076f153703ba1bcfb533c08a2be6a7046"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1ee4f12549ec9ed042307bab72413927e0150e7cfe6dec7350e28a3955a993f3","downloaded_from":"2026-09-10T01:21:51.112Z","last_downloaded_at":"2026-09-10T01:21:51.112Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479086","source_sha256":"4622dbf7b534d7d7b4ba70e5159fc02076f153703ba1bcfb533c08a2be6a7046"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9618d567e1b0ca1c29c6ef17d477a03116cb1d2aa92223438434341582d813d1","downloaded_from":"2026-09-10T01:21:51.112Z","last_downloaded_at":"2026-09-10T01:21:51.112Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479086","source_sha256":"4622dbf7b534d7d7b4ba70e5159fc02076f153703ba1bcfb533c08a2be6a7046"}},"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9618d567e1b0ca1c29c6ef17d477a03116cb1d2aa92223438434341582d813d1","downloaded_from":"2026-09-10T01:21:51.112Z","last_downloaded_at":"2026-09-10T01:21:51.112Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479086","source_sha256":"4622dbf7b534d7d7b4ba70e5159fc02076f153703ba1bcfb533c08a2be6a7046"}}