Capitalization

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TThe basic rules for interest capitalization are set forth in
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, 2) what timing to use for capitalization, and 3) how much interest to capitalize, will help you evaluate the impact of capitalized interest on your financial statements.
The construction of the new manufacturing plant as part of the expansion plans of the company warrant the circumstances which require the capitalization of interest costs. Generally accepted principles of accounting (GAAP) require the capitalization of interest costs if the asset qualifies. To qualify as an asset eligible for interest cost capitalization, the asset must be constructed or otherwise produced for an entity’s own use, including assets constructed or the amount capitalized is an allocation of the interest cost incurred during the period required to complete the asset, . amount capitalized is to be an allocation of the interest cost incurred during the period required to complete the asset. Interest costs have to be capitalized according to the generally accepted principles of accounting (GAAP). Capitalization of interest costs is a requirement of the Generally accepted accounting principles (GAAP)The expenditures involved in the expansion process…...

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