ASC 835-932

Extractive Activities—Oil and Gas

835 Interest

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In brief

IntermediateInitial measurement Industry-specific Inventory and PP&E Revenue

This subtopic applies the general interest capitalization rules of Subtopic 835-20 to oil- and gas-producing operations that use the full cost method. Costs already being depreciated, depleted, or amortized are treated as assets in use and do not qualify for interest capitalization, while unusually significant unproved properties and major development projects not yet being amortized and on which exploration or development is in progress do qualify. It also addresses pipeline advances made to encourage exploration, which fall within the imputation-of-interest exclusion in 835-30-15-3(b) unless the advance is in a Topic 606 contract with a customer.

Key points (6)

Under the full cost method, assets whose costs are currently being depreciated, depleted, or amortized are assets in use in the earning activities of the entity and are not qualifying assets for interest capitalization under paragraph 835-20-15-5 (835-932-25-1).
Unusually significant investments in unproved properties and major development projects that are not currently being depreciated, depleted, or amortized, and on which exploration or development activities are in progress, are qualifying assets for interest capitalization (835-932-25-1).
In a cost center with no production, significant properties and projects on which exploration or development activities are in progress are qualifying assets for interest capitalization (835-932-25-1).
Pipeline entity advances to encourage exploration, satisfied by delivery of future production but with a definite obligation to repay by a definite date if production is insufficient, are covered by the imputed-interest exclusion in paragraph 835-30-15-3(b) (835-932-25-2).
If such an advance is in a contract with a customer within the scope of Topic 606, the guidance in Topic 606 shall be applied instead (835-932-25-2).
The scope of this Subtopic follows Section 932-10-15 (835-932-15-1).

For students. The trap is assuming all full cost pool assets qualify for interest capitalization: once costs enter the amortization base they are "in use" and no longer qualifying, so only significant unproved properties and major development projects still under exploration or development (or any active project in a non-producing cost center) support capitalized interest.

full cost method capitalized interest qualifying assets unproved properties major development projects cost center pipeline advances imputation of interest

Machine-generated study aid for ASC 835-932. Check the source paragraphs below.

835-932-00Status

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835-932-00-1

The following table identifies the changes made to this Subtopic.

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
Production	Amended	Accounting Standards Update No. 2010-03	01/06/2010
Properties	Amended	Accounting Standards Update No. 2010-03	01/06/2010
Revenue	Added	Accounting Standards Update No. 2014-09	05/28/2014

932-835-25-2	Amended	Accounting Standards Update No. 2014-09	05/28/2014

835-932-05Overview and Background

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835-932-05-1

This Subtopic addresses interest capitalization under the full cost method of accounting in the oil and gas industry.

835-932-15Scope and Scope Exceptions

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Overall Guidance

835-932-15-1

This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 932-10-15.

835-932-25Recognition

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Assets Qualifying for Interest Capitalization

835-932-25-1

For purposes of applying interest capitalization (see Subtopic 835-20) to oil- and gas-producing operations accounted for by the full cost method, assets whose costs are being currently depreciated, depleted, or amortized are assets in use in the earning activities of the entity and are not assets qualifying for capitalization of interest cost as defined in paragraph 835-20-15-5. Unusually significant investments in unproved properties and major development projects that are not being currently depreciated, depleted, or amortized and on which exploration or development activities are in progress are assets qualifying for capitalization of interest cost. Similarly, in a cost center with no production, significant properties and projects on which exploration or development activities are in progress are assets qualifying for capitalization of interest cost.

Advances Satisfied by Delivery of Future Production

835-932-25-2

In certain transactions, pipeline entities make advances to encourage exploration. These advances are satisfied by delivery of future production, but there is also a definite obligation to repay if the future production is insufficient to discharge the obligation by a definite date. The advance is covered by the exclusion in paragraph 835-30-15-3(b) even though there may be an obligation to repay should the future production prove insufficient to discharge the obligation. However, if the advance is in a contract with a customer within the scope of Topic 606 on revenue from contracts with customers, the guidance in Topic 606shall be applied.