# ASC 835-980-25: Interest — Regulated Operations — 25 Recognition

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/835/980/#25-recognition)

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## ASC 835-980-25: 25 Recognition

[Read section](https://asc.understandingaccounting.org/asc/835/980/#25-recognition)

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#### Construction Financing Cost Capitalization

##### [835-980-25-1](https://asc.understandingaccounting.org/asc/835/980/#835-980-25-1)

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In some cases, a regulator requires an entity subject to its authority to [capitalize](https://asc.understandingaccounting.org/glossary/c/#capitalize "Capitalize is used to indicate that the cost would be recorded as the cost of an asset. That procedure is often referred to as deferring a cost, and the resulting asset is sometimes described as a deferred cost."), as part of the cost of plant and equipment, the cost of financing construction as financed partially by borrowings and partially by equity. This cost of financing construction is referred to as an [allowance for funds used during construction](https://asc.understandingaccounting.org/glossary/a/#allowance-for-funds-used-during-construction "The cost of financing construction as financed partially by borrowings and partially by equity, capitalized as part of the cost of plant and equipment pursuant to requirements of the regulator.").

##### [835-980-25-2](https://asc.understandingaccounting.org/asc/835/980/#835-980-25-2)

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If the specific criteria in paragraph [980-835-35-1](https://asc.understandingaccounting.org/asc/835/980/#835-980-35-1) are met but an allowance for funds used during construction is not capitalized because its inclusion in the cost that will become the basis for future rates is not probable, the regulated entity may not alternatively capitalize interest cost in accordance with Subtopic 835-20.

##### [835-980-25-3](https://asc.understandingaccounting.org/asc/835/980/#835-980-25-3)

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If completion of a plant under construction is reasonably possible but no longer probable, and the regulator in the governing jurisdiction routinely disallows accumulated allowance for funds used during construction on abandoned plants, the criteria required to write off such previously recognized amounts are not met since disallowance is not probable; thus, such previously capitalized amounts shall not be written off. However, because inclusion of allowance for funds used during construction in the cost allowed for future rates is no longer probable, further capitalization of such amounts is not warranted.

##### [835-980-25-4](https://asc.understandingaccounting.org/asc/835/980/#835-980-25-4)

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Assume that a prudence investigation is in process or has taken place, and a disallowance of cost (including subsequent allowance for funds used during construction on those costs) is reasonably possible, and that the range of such disallowance is from zero to some maximum amount, with no point within the range being more likely than any other. In that situation, because a disallowance of the maximum amount in the range is reasonably possible and thus inclusion of that amount in rates is no longer probable, subsequent capitalization of allowance for funds used during construction shall be discontinued for an amount of costs equal to the maximum amount that is within the range.