To calculate the amount of interest capitalized
Solve for the total weighted average accumulated expenditures, use the specific borrowing rate, and use the weighted average interest rate on other debt
In addition to the purchase price
You must capitalize all cost necessary to get the equipment ready for its intended use (includes installment and rearrangement cost)
What to capitalize for land cost would include
The purchase price for the land, added cost to demolish the existing building, subtract the proceeds form scrap of materials
Excavation cost are not included in the cost, but in the building cost
The 3 conditions that are necessary to begin capitalizing interest
Expenditures for the building have been made
Interest cost is being filed
Permits have been filed
*The capitalization period starts when expenditures incurred, and ends when the substantially complete and ready to use
The total interest incurred =
Interest on specific debt + borrowings
Avoidable interest =
Interest on weighted average amount of accumulated expenditures
Capitalized interest =
Smaller of the total interest incurred or avoidable interest
Capitalized interest is recognized on
Borrowing funds used to finance the weighted average accumulated expenses for a qualifying asset during the construction period
The total capitalized interest amount recognized
May not exceed the total interest cost actually incurred but the entity during the sitpulated period
Waiting to obtain permits to complete the construction process is considered
An ordinary delay in construction, and interest cost can be capitalized
Capitalized interest is permitted for
Inventory on hand that is special (High-end) order for a customer
Interest incurred during the construction period should be capitalized
Based on the weighted average of accumulated expenditures
If the machinery is for its own use,
Interest during the construction period is capitalized based on the weighted average of accumulated expenditures
*If the machinery is led for sale (inventory), Interest during and after construction are expensed immediately
