Essay about Capitalization
Statement of Financial Accounting Standards (SFAS) No. 34,
Capitalization of Interest Cost. Under this statement, interest incurred throughout the construction period of a project should be included as part of the cost of the asset under construction rather than reported as an expense of the period. The construction period extends from the initial preconstruction activities
(e.g., obtaining necessary permits) until an asset is ready to be placed into service.
Capitalizing interest is not optional. Generally accepted accounting principles require the capitalization of interest given the proper circumstances.
Addressing the three questions of 1) does the asset qualify, …show more content…
The construction of the manufacturing facility which is a part of the expansion process, qualifies as an asset for which interest must be capitalized. According to the requirements, the manufacturing plant will be ready for its intended use after a period of time. Also it is being constructed for the company’s internal use. expansion process which includes the construction of a manufacturing facility entails expenditure which requires borrowing. and construction of the manufacturing facility and
In order to qualify as an asset for which interest must be capitalized,