Under what conditions does a company capitalize the interest incurred during self-construction of an asset? Contrast your answer with accounting for interest on a note payable that is not associated with the construction of an asset.
State the conditions under which the company capitalizes the interest incurred during self-construction of an asset and contrast the answer with accounting for interest on a note payable that is not connected with the construction of an asset.
Capitalized interest:
Interest Cost incurred to finance the construction of a long-term construction projects are known as capitalized interest.
Cost of self-constructed assets:
Company sometimes constructs an item of “property, plant and equipment” which is used in the “business operations” and these are known as self-constructed assets. The cost of self-constructed assets comprises of expenses that are required to build an asset and put it in operating condition.
A company capitalizes interest on the self-construction
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