ASC 835-912
Contractors—Federal Government
835 Interest
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This Subtopic tells federal government contractors when interest cost may (and may not) be capitalized. Because assets built under contracts where revenue is recognized over time are "employed in the earnings activities" of the contractor (and often involve routinely produced inventories), interest capitalization is prohibited for those long-term contracts. Only when revenue is recognized at a point in time and fulfillment costs are capitalized as an asset under Subtopic 340-40 can those costs be qualifying assets for interest capitalization, and then the investment is limited to uncollected receivables net of related non-interest-bearing liabilities.
Key points (7)
- Government contractors shall exclude capitalized interest from long-term contracts with customers performed over time under the transfer-of-control guidance in 606-10-25-27 through 25-29 (835-912-25-1).
- Paragraph 835-20-15-6 proscribes interest capitalization for assets employed in the earnings activities of an entity, and an asset being constructed while progress is measured under 606-10-25-31 through 25-37 is so employed (835-912-25-1).
- Interest capitalization is also inappropriate for inventories that are routinely manufactured or otherwise produced in large quantities on a repetitive basis (835-912-25-1).
- When revenue is recognized at a point in time under 606-10-25-30 and costs are recognized as an asset under the costs-to-fulfill-a-contract guidance in Subtopic 340-40, those costs on a discrete project are qualifying assets while activities are underway to bring the asset to the condition and location necessary for its intended use (835-912-25-2).
- For point-in-time contractors that bill all costs currently, the investment in the asset is limited to uncollected receivables, reduced by related non-interest-bearing liabilities such as accounts and wages payable and accrued payroll taxes (835-912-25-3).
- Significant fluctuations in outstanding receivables and accrued costs may require daily accumulation by contract to determine amounts qualifying for interest capitalization (835-912-25-3).
- The Subtopic follows the same scope and scope exceptions as Section 912-10-15 (835-912-15-1).
For students. The exam trap is assuming construction-type contract assets are always "qualifying assets" for interest capitalization — for government contractors recognizing revenue over time, interest capitalization is flatly prohibited; it is only possible in point-in-time situations, and even then capped at uncollected receivables net of non-interest-bearing liabilities.
Machine-generated study aid for ASC 835-912. Check the source paragraphs below.
835-912-00Status
Source downloaded: .Record version 8edeffcff710. Effective date must be checked in the source.
| Paragraph | Action | Accounting Standards Update | Date |
| Contract | Added | Accounting Standards Update No. 2014-09 | 05/28/2014 |
| Customer | Added | Accounting Standards Update No. 2014-09 | 05/28/2014 |
| Revenue | Added | Accounting Standards Update No. 2014-09 | 05/28/2014 |
| Amended | Accounting Standards Update No. 2014-09 | 05/28/2014 |
835-912-05Overview and Background
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835-912-15Scope and Scope Exceptions
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Overall Guidance
835-912-25Recognition
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