A component of earnings that recognizes the return that the firm is expected to earn on assets that have not been placed in services is called .
A)earnings allowance
B)allowance for funds used during construction
C)capital budgeted
D)budgeted earnings

Question

Quizplus · Accepted Answer

The allowance for funds used during construction (AFUDC) recognizes the cost of borrowing money to finance construction of assets that are not yet in service. It also recognizes the return that the firm is expected to earn on those assets while they are under construction. AFUDC is a component of earnings that is often used in regulated industries such as utilities, where construction costs are passed on to customers through rates.

A Component of Earnings That Recognizes the Return That the Firm