# ASC 835-980: Interest — Regulated Operations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/835/980/) 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): 2026-09-10T01:51:29.287Z to 2026-09-10T01:51:51.446Z Record version: sha256:8d7ad5f8db757c349e9b0c567f069433cd0748e916e25d0669d53d93331725f7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 835-980: Interest — Regulated Operations ### Machine-generated study aids ```json { "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.", "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" ] } ``` Source downloaded (UTC): 2026-09-10T01:51:29.287Z to 2026-09-10T01:51:29.287Z Record version: sha256:c683342fc4f63ae058526eb1251456a71488d6e4aa8051ca17e9334cd881bfad Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 835-980-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/835/980/#05-overview-and-background) SEC content: no ##### [835-980-05-1](https://asc.understandingaccounting.org/asc/835/980/#835-980-05-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:51:29.287Z to 2026-09-10T01:51:29.287Z Record version: sha256:1aae365ba31bcb3e404b7bdb67f9d65c2c1d0a8146a8c8c64672f5d853e94d8e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic provides guidance on accounting for interest for entities with regulated operations. Source downloaded (UTC): 2026-09-10T01:51:31.337Z to 2026-09-10T01:51:31.337Z Record version: sha256:538eb13bfa49c4afaae61fd8ca1e581eecb3dc9062658b4841964ea2d0684a0c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 835-980-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/835/980/#15-scope-and-scope-exceptions) SEC content: no #### Overall Guidance ##### [835-980-15-1](https://asc.understandingaccounting.org/asc/835/980/#835-980-15-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:51:31.337Z to 2026-09-10T01:51:31.337Z Record version: sha256:f0eb1428e429e4d667780fdaf23a4a3d8b045f5c32c14110df7002126545de40 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 980-10-15. Source downloaded (UTC): 2026-09-10T01:51:37.091Z to 2026-09-10T01:51:37.091Z Record version: sha256:89df4a4b352501eff6d170f515caabd97b9cfb81666f37671c867ca99be88c76 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 835-980-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/835/980/#25-recognition) SEC content: no #### Construction Financing Cost Capitalization ##### [835-980-25-1](https://asc.understandingaccounting.org/asc/835/980/#835-980-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:51:37.091Z to 2026-09-10T01:51:37.091Z Record version: sha256:470a2ed7d472b990a23bed876e9158f53f8e59fa8c9609f9cca755af571eaec1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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) Pending content: no Source downloaded (UTC): 2026-09-10T01:51:37.091Z to 2026-09-10T01:51:37.091Z Record version: sha256:78c79135be615b94bd860ccf8a094353e5ef2ad4e7541ae6669f6d7b7ac07242 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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) Pending content: no Source downloaded (UTC): 2026-09-10T01:51:37.091Z to 2026-09-10T01:51:37.091Z Record version: sha256:d0cbc739d9148015a256afab92ceea9d994b87aad3515a5ae24d640ab89b7d23 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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) Pending content: no Source downloaded (UTC): 2026-09-10T01:51:37.091Z to 2026-09-10T01:51:37.091Z Record version: sha256:320ce1c789f27e350788d148016026267a5caf7136058435fa7f05239163ebfd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. Source downloaded (UTC): 2026-09-10T01:51:40.838Z to 2026-09-10T01:51:40.838Z Record version: sha256:7150cb2dbcea1e679c012b7e4e1b829bf4abc281563dbdfb9fb68e1fcc93e79c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 835-980-30: 30 Initial Measurement [Read section](https://asc.understandingaccounting.org/asc/835/980/#30-initial-measurement) SEC content: no ##### [835-980-30-1](https://asc.understandingaccounting.org/asc/835/980/#835-980-30-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:51:40.838Z to 2026-09-10T01:51:40.838Z Record version: sha256:d25cc761618ee5b689bb7267fefa426336980f3cadba162f02692beccad221a6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a regulator requires an entity to capitalize certain costs as discussed in paragraph [980-835-25-1](https://asc.understandingaccounting.org/asc/835/980/#835-980-25-1), 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. 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 835-20. Those amounts shall be capitalized only if their subsequent inclusion in [allowable costs](https://asc.understandingaccounting.org/glossary/a/#allowable-costs "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.") for rate-making purposes is probable. Source downloaded (UTC): 2026-09-10T01:51:43.899Z to 2026-09-10T01:51:43.899Z Record version: sha256:807323e67f296da4f7352b53ef7631b238f03d79352471842f2807303ac8a83a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 835-980-35: 35 Subsequent Measurement [Read section](https://asc.understandingaccounting.org/asc/835/980/#35-subsequent-measurement) SEC content: no ##### [835-980-35-1](https://asc.understandingaccounting.org/asc/835/980/#835-980-35-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:51:43.899Z to 2026-09-10T01:51:43.899Z Record version: sha256:f69794400b5151cce3b5946aa07a968dbc6689d021929882d4a77ebd5d6680fd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. After construction is completed, the resulting capitalized cost, including the [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."), is the basis for depreciation and unrecovered investment for rate-making purposes. Source downloaded (UTC): 2026-09-10T01:51:47.374Z to 2026-09-10T01:51:47.374Z Record version: sha256:a3208a65260264333570a134da69dbeb0fef97558ddb4675cc199c2fbb1a5512 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 835-980-45: 45 Other Presentation Matters [Read section](https://asc.understandingaccounting.org/asc/835/980/#45-other-presentation-matters) SEC content: no ##### [835-980-45-1](https://asc.understandingaccounting.org/asc/835/980/#835-980-45-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:51:47.374Z to 2026-09-10T01:51:47.374Z Record version: sha256:ee2fe40b1b192ea78984b913d6a4cd9f9148c4542b0104dec96bcdba32d1f06f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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 [980-835-25-1](https://asc.understandingaccounting.org/asc/835/980/#835-980-25-1).