{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/835/20/#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":"835","topic_title":"Interest","subtopic":"835-20","subtopic_title":"Capitalization of Interest","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":"835-20-55-1","para":"55-1","html":"
The following provides implementation guidance related to the application of the scope guidance in paragraph 835-20-15-6(d) through (e).
","snippet":"The following provides implementation guidance related to the application of the scope guidance in paragraph 835-20-15-6(d) through (e).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9a28279339b0544e2381414bd006e9fbf1aff25b43acf5b09ca2ce3b619aa54f","downloaded_from":"2026-09-10T01:49:23.304Z","last_downloaded_at":"2026-09-10T01:49:23.304Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147482985","source_sha256":"f769ff2d34cece0c528853f57965865729a38b7185b49d19a542c983638645de"}},{"citation":"835-20-55-2","para":"55-2","html":"
This paragraph provides clarification of the phrase when planned principal operations begin (in paragraph 835-20-15-6(d)) to be able to determine when the investment in the investee that is the qualifying asset is ready for its intended use and interest capitalization ceases. Planned principal operations may not have commenced if the entity is devoting substantially all of its efforts to establishing a new business through activities such as the following:
  1. a
    Financial planning
  2. b
    Raising capital
  3. c
    Exploring for natural resources
  4. d
    Developing natural resources
  5. e
    Research and development
  6. f
    Establishing sources of supply
  7. g
    Acquiring property, plant, and equipment or other operating assets, such as mineral rights
  8. h
    Recruiting and training personnel
  9. i
    Developing markets
  10. j
    Starting up production.
","snippet":"This paragraph provides clarification of the phrase when planned principal operations begin (in paragraph 835-20-15-6(d)) to be able to determine when the investment in the investee that is the qualifying asset is ready …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0cdf918ae37776dd50637f17fd63438f4471c4723bcab99546f5c8b5a8dbaf05","downloaded_from":"2026-09-10T01:49:23.304Z","last_downloaded_at":"2026-09-10T01:49:23.304Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147482985","source_sha256":"f769ff2d34cece0c528853f57965865729a38b7185b49d19a542c983638645de"}},{"citation":"835-20-55-3","para":"55-3","html":"
This paragraph elaborates on the guidance in paragraph 835-20-15-6(e) regarding an investment by an investor in a regulated investee that is accounted for by the equity method while the investee is constructing qualifying assets. Paragraphs 980-835-25-1, 980-835-30-1, and 980-835-35-1 address how a regulated investee capitalizes both a cost of debt and a cost of equity capital during its construction period rather than the amount of interest that it would capitalize in accordance with this Subtopic. That method imputes a cost to the investee's equity capital and recognizes that cost as part of the carrying amount of the asset under construction and as current earnings of the investee. Since the investor, by recognizing its equity in the investee's current earnings, includes its prorated share of that imputed cost in the carrying amount of its investment and in its current earnings, the investor should not capitalize an additional cost.
","snippet":"This paragraph elaborates on the guidance in paragraph 835-20-15-6(e) regarding an investment by an investor in a regulated investee that is accounted for by the equity method while the investee is constructing qualifyin…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:6e9cff22c2a2e9a20a2521d22194217ad04dbb3707fb451c67f6dfdb590eed72","downloaded_from":"2026-09-10T01:49:23.304Z","last_downloaded_at":"2026-09-10T01:49:23.304Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147482985","source_sha256":"f769ff2d34cece0c528853f57965865729a38b7185b49d19a542c983638645de"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3029c72dee969c9941a77a57857a26d5328488cd33ab57cf1db204b3b5df1a07","downloaded_from":"2026-09-10T01:49:23.304Z","last_downloaded_at":"2026-09-10T01:49:23.304Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147482985","source_sha256":"f769ff2d34cece0c528853f57965865729a38b7185b49d19a542c983638645de"}},{"block":null,"heading":"Illustrations","paragraphs":[{"citation":"835-20-55-4","para":"55-4","html":"
This Example illustrates the application of the guidance in this Subtopic related to capitalization of interest cost in situations involving certain tax-exempt borrowings and certain gifts and grants (see paragraphs
835-20-30-10 through 30-12
).
  1. a
    Entity A is committed to construct a project at a cost of $10 million. The project is to be financed from three sources:
    1. 1
      $4 million government grant restricted to use for the specified construction project, payable $1 million per year
    2. 2
      $4 million tax-exempt borrowing at an interest rate of 8 percent ($320,000 per year)
    3. 3
      $2 million from operations.
  2. b
    Entity A has $10 million in other borrowings that are outstanding throughout the construction of the project. The interest rate on those borrowings is 6 percent. Other qualifying assets of the entity never exceed $5 million during the construction of the project.
  3. c
    The proceeds from the borrowing and the initial phase of the grant are received 1 year in advance of starting construction on the project and are temporarily invested in interest-bearing investments yielding 12 percent. Interest income earned from temporary investments is not reinvested.
  4. d
    The project will take four years after start of construction to complete.
  5. e
    The following table sets forth the amount of interest to be capitalized as part of the entity's investment in the project.
    • \"
      Year 19X1 19X2 19X3 19X4 19X5 (amounts in thousands) (1)\tAssumed average qualifying assets $- \" $2,000 \" \" $5,000 \" \" $8,000 \" \" $9,000 \" (2)\tAverage funding received Borrowing \" 4,000 \" \" 4,000 \" \" 4,000 \" \" 4,000 \" \" 4,000 \" Grant \" 1,000 \" \" 2,000 \" \" 3,000 \" \" 4,000 \" \" 4,000 \" (3)\t\"Average temporary investments [(2) - (1), not less than zero] (a)\" Borrowing \" 4,000 \" \" 3,000 \" \" 1,000 \" - - Grant \" 1,000 \" \" 1,000 \" \" 1,000 \" - - (4)\tInterest earned [(3) x 12 percent] (a) Borrowing 480 360 120 - - (b) Grant 120 120 120 - - (5)\t\"Average qualifying assets in excess of borrowing, grant,and interest earned on grant (b)\" - - - - 640 (6)\tInterest cost capitalized—other borrowings [(5) x 6 percent] - - - - 38 (7)\tInterest cost—tax-exempt borrowings 320 320 320 320 320 (8)\tInterest capitalized [(6) + (7) - (4)(a)] (c) (160) (40) 200 320 358 (a)\tBalances of unexpended borrowings and unexpended grants can vary depending on the source from which the entity elects to disburse funds. (b)\t\"That is, (1) average qualifying assets minus the sum of [(2) average funding received plus (4)(b) cumulative interest earned on grant], not less than zero.\" (c)\tNote that amounts in parentheses are reductions in the cost of the asset.
  6. f
    Over the course of construction, the net cost of financing is $678,000, the sum of the interest capitalized for the five years. Accordingly, Entity A's total net investment in the project will be $10,678,000.
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