{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/835/980/","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.","number":"835-980","topic":"835","title":"Regulated Operations","area":"Broad Transactions","paragraphs":9,"summary":"This Subtopic governs how entities with regulated operations account for the financing cost of construction — the allowance for funds used during construction (AFUDC), which includes both a computed interest component and a designated cost of equity funds. When a regulator requires such capitalization, the rate-making amount (not the amount computed under Subtopic 835-20) is capitalized for financial reporting purposes, but only if subsequent inclusion in allowable costs for rate-making purposes is probable. The credit is reported in the income statement as other income, a reduction of interest expense, or both.","concepts":["allowance for funds used during construction","regulated operations","capitalized interest","cost of equity funds","probable inclusion in allowable costs","rate-making","prudence disallowance","abandoned plant"],"categories":["Initial measurement","Inventory and PP&E","Industry-specific","Presentation"],"level":"intermediate","topic_title":"Interest","sections":[{"number":"05","label":"05 Overview and Background","anchor":"05-overview-and-background","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"835-980-05-1","para":"05-1","html":"<div class=\"asc-body\"><div class=\"norm-text\">This Subtopic provides guidance on accounting for interest for entities with regulated operations.</div></div>","snippet":"This Subtopic provides guidance on accounting for interest for entities with regulated operations.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1aae365ba31bcb3e404b7bdb67f9d65c2c1d0a8146a8c8c64672f5d853e94d8e","downloaded_from":"2026-09-10T01:51:29.287Z","last_downloaded_at":"2026-09-10T01:51:29.287Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147478635","source_sha256":"50f0a1819baabacbc78982e91b65e2f1e8658f03d262e1700baca6e4e23064b5"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e2bfa1908cd100fa2cbd460944e854f41a96f928056c9cdfdaa2ba0ce6eb8556","downloaded_from":"2026-09-10T01:51:29.287Z","last_downloaded_at":"2026-09-10T01:51:29.287Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147478635","source_sha256":"50f0a1819baabacbc78982e91b65e2f1e8658f03d262e1700baca6e4e23064b5"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c683342fc4f63ae058526eb1251456a71488d6e4aa8051ca17e9334cd881bfad","downloaded_from":"2026-09-10T01:51:29.287Z","last_downloaded_at":"2026-09-10T01:51:29.287Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147478635","source_sha256":"50f0a1819baabacbc78982e91b65e2f1e8658f03d262e1700baca6e4e23064b5"}},{"number":"15","label":"15 Scope and Scope Exceptions","anchor":"15-scope-and-scope-exceptions","is_sec":false,"groups":[{"block":null,"heading":"Overall Guidance","paragraphs":[{"citation":"835-980-15-1","para":"15-1","html":"<div class=\"asc-body\"><div class=\"norm-text\">This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section <a altsource=\"GUID-DFCF42C6-CE0D-45BC-9846-5A2EFDE587F3.ditamap\" class=\"ditamap\">980-10-15</a>.</div></div>","snippet":"This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 980-10-15.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f0eb1428e429e4d667780fdaf23a4a3d8b045f5c32c14110df7002126545de40","downloaded_from":"2026-09-10T01:51:31.337Z","last_downloaded_at":"2026-09-10T01:51:31.337Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147478673","source_sha256":"bccd7b0848cefc9435214a41b2b407efba593ddb6e95f8731f8d6fad40649744"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:47afeb715041333f6ea681befb7ce9989a7698e527f04629193e2bc3d2b37636","downloaded_from":"2026-09-10T01:51:31.337Z","last_downloaded_at":"2026-09-10T01:51:31.337Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147478673","source_sha256":"bccd7b0848cefc9435214a41b2b407efba593ddb6e95f8731f8d6fad40649744"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:538eb13bfa49c4afaae61fd8ca1e581eecb3dc9062658b4841964ea2d0684a0c","downloaded_from":"2026-09-10T01:51:31.337Z","last_downloaded_at":"2026-09-10T01:51:31.337Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147478673","source_sha256":"bccd7b0848cefc9435214a41b2b407efba593ddb6e95f8731f8d6fad40649744"}},{"number":"25","label":"25 Recognition","anchor":"25-recognition","is_sec":false,"groups":[{"block":null,"heading":"Construction Financing Cost Capitalization","paragraphs":[{"citation":"835-980-25-1","para":"25-1","html":"<div class=\"asc-body\"><div class=\"norm-text\"><span class=\"sfragment\" id=\"sfr_497B4A0E-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">In some cases, a regulator requires an entity subject to its authority to <a href=\"/glossary/c/#capitalize\" class=\"term\" title=\"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.\"><span>capitalize</span></a>, 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 <a href=\"/glossary/a/#allowance-for-funds-used-during-construction\" class=\"term\" title=\"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.\"><span>allowance for funds used during construction</span></a>. </span></span></div></div>","snippet":"In some cases, a regulator requires an entity subject to its authority to capitalize, as part of the cost of plant and equipment, the cost of financing construction as financed partially by borrowings and partially by eq…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:470a2ed7d472b990a23bed876e9158f53f8e59fa8c9609f9cca755af571eaec1","downloaded_from":"2026-09-10T01:51:37.091Z","last_downloaded_at":"2026-09-10T01:51:37.091Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147478698","source_sha256":"6abf41cd20f36fdf541e29f4a63c0b21512dd45ca9e48f031ab21af984d569a4"}},{"citation":"835-980-25-2","para":"25-2","html":"<div class=\"asc-body\"><div class=\"norm-text\"><span class=\"sfragment\" id=\"sfr_497B4BA9-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">If the specific criteria in paragraph <a href=\"/asc/835/980/#835-980-35-1\" class=\"xref\">980-835-35-1</a> 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 <a altsource=\"GUID-07251D70-AAFA-429D-B7E1-4BA74D4FD303.ditamap\" class=\"ditamap\">835-20</a>. </span></span></div></div>","snippet":"If the specific criteria in paragraph 980-835-35-1 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 proba…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:78c79135be615b94bd860ccf8a094353e5ef2ad4e7541ae6669f6d7b7ac07242","downloaded_from":"2026-09-10T01:51:37.091Z","last_downloaded_at":"2026-09-10T01:51:37.091Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147478698","source_sha256":"6abf41cd20f36fdf541e29f4a63c0b21512dd45ca9e48f031ab21af984d569a4"}},{"citation":"835-980-25-3","para":"25-3","html":"<div class=\"asc-body\"><div class=\"norm-text\"><span class=\"sfragment\" id=\"sfr_497B4CD8-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">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. </span></span></div></div>","snippet":"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 a…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d0cbc739d9148015a256afab92ceea9d994b87aad3515a5ae24d640ab89b7d23","downloaded_from":"2026-09-10T01:51:37.091Z","last_downloaded_at":"2026-09-10T01:51:37.091Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147478698","source_sha256":"6abf41cd20f36fdf541e29f4a63c0b21512dd45ca9e48f031ab21af984d569a4"}},{"citation":"835-980-25-4","para":"25-4","html":"<div class=\"asc-body\"><div class=\"norm-text\"><span class=\"sfragment\" id=\"sfr_497B4E0B-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">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. </span></span></div></div>","snippet":"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 ra…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:320ce1c789f27e350788d148016026267a5caf7136058435fa7f05239163ebfd","downloaded_from":"2026-09-10T01:51:37.091Z","last_downloaded_at":"2026-09-10T01:51:37.091Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147478698","source_sha256":"6abf41cd20f36fdf541e29f4a63c0b21512dd45ca9e48f031ab21af984d569a4"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2fcf500854d3c1a34919865c87e12ee00b139c8a5eaa59d8b1cc9919461df393","downloaded_from":"2026-09-10T01:51:37.091Z","last_downloaded_at":"2026-09-10T01:51:37.091Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147478698","source_sha256":"6abf41cd20f36fdf541e29f4a63c0b21512dd45ca9e48f031ab21af984d569a4"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:89df4a4b352501eff6d170f515caabd97b9cfb81666f37671c867ca99be88c76","downloaded_from":"2026-09-10T01:51:37.091Z","last_downloaded_at":"2026-09-10T01:51:37.091Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147478698","source_sha256":"6abf41cd20f36fdf541e29f4a63c0b21512dd45ca9e48f031ab21af984d569a4"}},{"number":"30","label":"30 Initial Measurement","anchor":"30-initial-measurement","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"835-980-30-1","para":"30-1","html":"<div class=\"asc-body\"><div class=\"norm-text\"><span class=\"sfragment\" id=\"sfr_49842B81-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">If a regulator requires an entity to capitalize certain costs as discussed in paragraph <a href=\"/asc/835/980/#835-980-25-1\" class=\"xref\">980-835-25-1</a>, a computed interest cost and a designated cost of equity funds are capitalized, and net income for the current period is increased by a corresponding amount. </span></span><span class=\"sfragment\" id=\"sfr_49842C80-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">In such cases, the amounts capitalized for rate-making purposes as part of the cost of acquiring the assets shall be capitalized for financial reporting purposes instead of the amount of interest that would be capitalized in accordance with Subtopic <a altsource=\"GUID-07251D70-AAFA-429D-B7E1-4BA74D4FD303.ditamap\" class=\"ditamap\">835-20</a>.</span></span><span class=\"sfragment\" id=\"sfr_49842D56-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\"> Those amounts shall be capitalized only if their subsequent inclusion in <a href=\"/glossary/a/#allowable-costs\" class=\"term\" title=\"All costs for which revenue is intended to provide recovery. Those costs can be actual or estimated. In that context, allowable costs include interest cost and amounts provided for earnings on shareholders' investments.\"><span>allowable costs</span></a> for rate-making purposes is probable. </span></span></div></div>","snippet":"If a regulator requires an entity to capitalize certain costs as discussed in paragraph 980-835-25-1, a computed interest cost and a designated cost of equity funds are capitalized, and net income for the current period …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d25cc761618ee5b689bb7267fefa426336980f3cadba162f02692beccad221a6","downloaded_from":"2026-09-10T01:51:40.838Z","last_downloaded_at":"2026-09-10T01:51:40.838Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147478497","source_sha256":"4f2803ac7932d11d25000a466eda74c9bb48a51c70abf8915714fa8489465133"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:db2f8ef709d36f5f5da00bff34a973127797b5e56dd0792505fb74b80be1c190","downloaded_from":"2026-09-10T01:51:40.838Z","last_downloaded_at":"2026-09-10T01:51:40.838Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147478497","source_sha256":"4f2803ac7932d11d25000a466eda74c9bb48a51c70abf8915714fa8489465133"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7150cb2dbcea1e679c012b7e4e1b829bf4abc281563dbdfb9fb68e1fcc93e79c","downloaded_from":"2026-09-10T01:51:40.838Z","last_downloaded_at":"2026-09-10T01:51:40.838Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147478497","source_sha256":"4f2803ac7932d11d25000a466eda74c9bb48a51c70abf8915714fa8489465133"}},{"number":"35","label":"35 Subsequent Measurement","anchor":"35-subsequent-measurement","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"835-980-35-1","para":"35-1","html":"<div class=\"asc-body\"><div class=\"norm-text\"><span class=\"sfragment\" id=\"sfr_498C553F-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">After construction is completed, the resulting capitalized cost, including the <a href=\"/glossary/a/#allowance-for-funds-used-during-construction\" class=\"term\" title=\"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.\"><span>allowance for funds used during construction</span></a>, is the basis for depreciation and unrecovered investment for rate-making purposes. </span></span></div></div>","snippet":"After construction is completed, the resulting capitalized cost, including the allowance for funds used during construction, is the basis for depreciation and unrecovered investment for rate-making purposes.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f69794400b5151cce3b5946aa07a968dbc6689d021929882d4a77ebd5d6680fd","downloaded_from":"2026-09-10T01:51:43.899Z","last_downloaded_at":"2026-09-10T01:51:43.899Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147478355","source_sha256":"1ee60d6fd82ab6d710c1a9e31d4baaabed9666890a15fe74fb6cf6ab2af846fd"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:e5a7d7ee6b203b2b3c16563e8fc5f9fa46bfcd6cb165eceb201aea4a64d171b3","downloaded_from":"2026-09-10T01:51:43.899Z","last_downloaded_at":"2026-09-10T01:51:43.899Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147478355","source_sha256":"1ee60d6fd82ab6d710c1a9e31d4baaabed9666890a15fe74fb6cf6ab2af846fd"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:807323e67f296da4f7352b53ef7631b238f03d79352471842f2807303ac8a83a","downloaded_from":"2026-09-10T01:51:43.899Z","last_downloaded_at":"2026-09-10T01:51:43.899Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147478355","source_sha256":"1ee60d6fd82ab6d710c1a9e31d4baaabed9666890a15fe74fb6cf6ab2af846fd"}},{"number":"45","label":"45 Other Presentation Matters","anchor":"45-other-presentation-matters","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"835-980-45-1","para":"45-1","html":"<div class=\"asc-body\"><div class=\"norm-text\"><span class=\"sfragment\" id=\"sfr_499906A2-6E93-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">The income statement shall include an item of other income, a reduction of interest expense, or both, in a manner that indicates the basis for the amount of construction financing cost capitalized as required by paragraph <a href=\"/asc/835/980/#835-980-25-1\" class=\"xref\">980-835-25-1</a>. </span></span></div></div>","snippet":"The income statement shall include an item of other income, a reduction of interest expense, or both, in a manner that indicates the basis for the amount of construction financing cost capitalized as required by paragrap…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ee2fe40b1b192ea78984b913d6a4cd9f9148c4542b0104dec96bcdba32d1f06f","downloaded_from":"2026-09-10T01:51:47.374Z","last_downloaded_at":"2026-09-10T01:51:47.374Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479123","source_sha256":"dcc5303b5837f2c5961e02c031da19fae24df0e73e0468e8a2b00d04d23b14d9"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c0cffbdd9956eb1f1b924fda7776a2ba8c8cf9bcaaaa3ff5f66483c0699f1979","downloaded_from":"2026-09-10T01:51:47.374Z","last_downloaded_at":"2026-09-10T01:51:47.374Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not 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funds. When a regulator requires such capitalization, the rate-making amount (not the amount computed under Subtopic 835-20) is capitalized for financial reporting purposes, but only if subsequent inclusion in allowable costs for rate-making purposes is probable. The credit is reported in the income statement as other income, a reduction of interest expense, or both.","key_points":["A regulator may require capitalization, as part of plant and equipment cost, of the cost of financing construction funded by both borrowings and equity — the allowance for funds used during construction (835-980-25-1).","When a regulator requires capitalization, the amounts capitalized for rate-making purposes (computed interest plus a designated cost of equity funds), rather than the amount under Subtopic 835-20, are capitalized for financial reporting, and net income is increased correspondingly (835-980-30-1).","AFUDC is capitalized only if its subsequent inclusion in allowable costs for rate-making purposes is probable (835-980-30-1).","If AFUDC is not capitalized because inclusion in the future rate base is not probable, the entity may not instead capitalize interest cost under Subtopic 835-20 (835-980-25-2).","If completion of a plant is only reasonably possible and the regulator routinely disallows accumulated AFUDC on abandoned plants, previously capitalized amounts are not written off (disallowance is not probable), but further capitalization is not warranted (835-980-25-3).","Where a prudence investigation makes disallowance reasonably possible over a range with no point more likely than another, further AFUDC capitalization is discontinued on an amount of costs equal to the maximum amount in the range (835-980-25-4).","After construction is complete, the capitalized cost including AFUDC is the basis for depreciation and unrecovered investment for rate-making purposes (835-980-35-1), and the income statement must present the credit as other income, a reduction of interest expense, or both (835-980-45-1)."],"categories":["Initial measurement","Inventory and PP&E","Industry-specific","Presentation"],"audience_level":"intermediate","student_note":"The key exam trap is that AFUDC includes an equity return component and boosts current net income — unlike ordinary capitalized interest under 835-20 — and that it is an either/or choice: if AFUDC fails the \"probable\" recovery test, the entity cannot fall back on normal interest capitalization.","related_topics":["980-835","980-10","835-20","980-340","980-360"],"key_concepts":["allowance for funds used during construction","regulated operations","capitalized interest","cost of equity funds","probable inclusion in allowable costs","rate-making","prudence disallowance","abandoned plant"],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3de7c6043a0e5147fb19a757bb472f1542df9dfb61e46084db1932f13c6daaaf","downloaded_from":"2026-09-10T01:51:29.287Z","last_downloaded_at":"2026-09-10T01:51:51.446Z","date_scope":"source_page_range","effective_as_of":null,"effective_as_of_status":"Not established by retrieval 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