# ASC 835-20-55: Interest — Capitalization of Interest — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/835/20/#55-implementation-guidance-and-illustrations) 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): 2026-09-10T01:49:23.304Z to 2026-09-10T01:49:23.304Z Record version: sha256:2668fe4a8ca9eda2f4f10bafcfa5c32ce4247a5f486d29abae3c308fb909d492 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 835-20-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/835/20/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [835-20-55-1](https://asc.understandingaccounting.org/asc/835/20/#835-20-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:23.304Z to 2026-09-10T01:49:23.304Z Record version: sha256:9a28279339b0544e2381414bd006e9fbf1aff25b43acf5b09ca2ce3b619aa54f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following provides implementation guidance related to the application of the scope guidance in paragraph [835-20-15-6(d) through (e)](https://asc.understandingaccounting.org/asc/835/20/#835-20-15-6). ##### [835-20-55-2](https://asc.understandingaccounting.org/asc/835/20/#835-20-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:23.304Z to 2026-09-10T01:49:23.304Z Record version: sha256:0cdf918ae37776dd50637f17fd63438f4471c4723bcab99546f5c8b5a8dbaf05 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This paragraph provides clarification of the phrase _when planned principal operations begin_ (in paragraph [835-20-15-6(d)](https://asc.understandingaccounting.org/asc/835/20/#835-20-15-6)) to be able to determine when the investment in the investee that is the qualifying asset is ready for its [intended use](https://asc.understandingaccounting.org/glossary/i/#intended-use "Intended use of an asset embraces both readiness for use and readiness for sale, depending on the purpose of acquisition.") 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](https://asc.understandingaccounting.org/glossary/a/#activities "The term activities is to be construed broadly. It encompasses physical construction of the asset. In addition, it includes all the steps required to prepare the asset for its intended use. For example, it includes administrative and technical activities during the preconstruction stage, such as the development of plans or the process of obtaining permits from governmental authorities. It also includes activities undertaken after construction has begun in order to overcome unforeseen obstacles, such as technical problems, labor disputes, or litigation.") 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. ##### [835-20-55-3](https://asc.understandingaccounting.org/asc/835/20/#835-20-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:23.304Z to 2026-09-10T01:49:23.304Z Record version: sha256:6e9cff22c2a2e9a20a2521d22194217ad04dbb3707fb451c67f6dfdb590eed72 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This paragraph elaborates on the guidance in paragraph [835-20-15-6(e)](https://asc.understandingaccounting.org/asc/835/20/#835-20-15-6) 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](https://asc.understandingaccounting.org/asc/835/980/#835-980-25-1), [980-835-30-1](https://asc.understandingaccounting.org/asc/835/980/#835-980-30-1), and [980-835-35-1](https://asc.understandingaccounting.org/asc/835/980/#835-980-35-1) 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. #### Illustrations ##### [835-20-55-4](https://asc.understandingaccounting.org/asc/835/20/#835-20-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:23.304Z to 2026-09-10T01:49:23.304Z Record version: sha256:9a9dd0fa8472efe52345af795fe98cda6d05239b19e86d5b161f803a7aa24561 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the application of the guidance in this Subtopic related to capitalization of [interest cost](https://asc.understandingaccounting.org/glossary/i/#interest-cost "Interest cost includes interest recognized on obligations having explicit interest rates, interest imputed on certain types of payables in accordance with Subtopic 835-30, and interest related to a finance lease determined in accordance with Topic 842. With respect to obligations having explicit interest rates, interest cost includes amounts resulting from periodic amortization of discount or premium and issue costs on debt.") in situations involving certain tax-exempt borrowings and certain gifts and grants (see paragraphs [835-20-30-10 through 30-12](https://asc.understandingaccounting.org/asc/835/20/#835-20-30-10) ). 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. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-68003CE2-0F58-4D74-8305-4FD8405EED14-low.gif) Year 19X1 19X2 19X3 19X4 19X5 (amounts in thousands) (1) Assumed average qualifying assets $- " $2,000 " " $5,000 " " $8,000 " " $9,000 " (2) Average 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) "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) Interest earned \[(3) x 12 percent\] (a) Borrowing 480 360 120 - - (b) Grant 120 120 120 - - (5) "Average qualifying assets in excess of borrowing, grant,and interest earned on grant (b)" - - - - 640 (6) Interest cost capitalized—other borrowings \[(5) x 6 percent\] - - - - 38 (7) Interest cost—tax-exempt borrowings 320 320 320 320 320 (8) Interest capitalized \[(6) + (7) - (4)(a)\] (c) (160) (40) 200 320 358 (a) Balances of unexpended borrowings and unexpended grants can vary depending on the source from which the entity elects to disburse funds. (b) "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) Note 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.