FIN 07-20

Reclamation Manual
Directives and Standards

20 Property, Plant, and Equipment
10 Capitalization and Valuation

Subject(A): Interest During Construction (IDC)

Purpose: To clarify the procedures for calculating and recording IDC

Authority: Reclamation Project Act of 1939

Water Supply Act of 1958

GAO's Manual for Guidance of Federal Agencies, Title 2 - Accounting, Appendix I - Accounting Principles and Standards, C10 - Capitalization of Interest on Property, Plant, and Equipmento

Contact: General Accounting and Technical Analysis Group (GATAG), Finance and Accounting Service, (303) 445-3423.

1. Responsibilities.

The Regional Finance Offices are responsible for calculating and recording interest during construction (IDC) on an annual basis in accordance with the procedures in this Supplement, and the attachments thereto.

2. Computing Interest During Construction (IDC).

Generally, the costs (original construction costs and costs of additions and replacements regardless of source of funds) allocated to reimbursable functions, except irrigation, are subject to IDC unless otherwise provided by law.

A. Power. Effective October 1, 1983, compound interest will be used for computing IDC on all projects, replacements, and additions under construction and all future projects, additions, and replacements. If the project, replacement, or addition was under construction before October 1, 1983, simple interest will be used to compute IDC for the period through September 30, 1983.

B. Functions Other Than Power. Same as for power unless otherwise provided by repayment contract or law. (All projects with planning reports with simple interest adopted before September 30, 1980, will use simple interest per Planning Instructions 80-45 dated November 10, 1980.)

C. Base for Computation.

(1). The base for computing IDC will be net disbursements of the funds used for the construction, replacements, or addition plus (effective October 1, 1983), IDC adjusted downward for the following items:

The base for computing IDC on additions and replacements may be determined by analysis of the applicable accounts with adjustments as indicated above.

(2). The accumulated net disbursements for advance planning and preconstruction cost activities will become a part of the base for computing IDC commencing with the beginning of the year that construction is initiated.

(3). The IDC will not be applied to general investigation disbursements either before or after initiation of construction. This includes both reimbursable and nonreimbursable general investigations costs.

(4). The allocations of costs for the purposes of calculating IDC will be the same as those used for the Statement of Project Construction Cost and Repayment.

D. When To Start Interest During Construction. The IDC will begin for a project, a unit of a project, or a replacement or addition when the first disbursement is made to initiate construction or replacement. This is defined as the point in time when the first disbursement is made under a construction contract, including contracts for purchase of rights-of-way, as distinguished from disbursements for advance planning and preconstruction activities.

E. Termination Of Interest During Construction. Normally, IDC will terminate at the end of the fiscal year in which construction of the feature and any necessary associated features is substantially completed and the facilities are ready to deliver water and/or power. The IDC will terminate on additions and replacements when they are substantially completed. When repayment and associated interest on investment does not start at the beginning of a fiscal year, IDC will be computed up to the time that interest on investment begins.

F. Procedures For Computing Interest During Construction. The IDC is considered to be an estimate for construction and deficits until a Final Cost Allocation (FCA) has been completed and for replacements or additions until substantial completion and transfer to the plant accounts. Refer to Attachment A (including Figures 1, 2, and 3) for further details.

G. Procedures For Recording Interest During Construction in the Accounts. Refer to Attachment B.

3. Related References.

Planning Instruction No(s):
* 80-45, Policy on Computing Interest During Construction for Repayment,
* 86-01, Compound Interest for Repayment of Power Functions
Memorandums, Subject: Interest Rates for Fiscal Year 199x.

4. Attachments.

A. Procedures for Computing IDC w/Spreadsheet Examples

Figure 1 General Procedures

Figure 2 Example of Computation - New Construction

Figure 3 Example of Computation - Additions and Replacements

B. Recording IDC in the Accounts

(020) 4/1/96