The amount of interest to capitalize for self-constructed assets includes interest on borrowed amounts since inception of the loan, regardless of when construction expenditures are made.
True
The statement mentioned in the question is correct.
According to accounting standards, the interest incurred on borrowed amounts during the construction of self-constructed assets is a part of the cost of that asset. This interest cost is capitalized, meaning it is added to the cost of the asset, rather than being expensed immediately.
The rationale behind capitalizing interest is that the cost of the asset should include all costs that are necessary to bring the asset to its intended use. Since interest on borrowed funds is a cost incurred to finance the asset’s construction, it should be included in the asset’s cost rather than being treated as an expense in the period when it is incurred.
Further, the interest cost that needs to be capitalized includes all interest incurred since the inception of the loan, regardless of when construction expenditures are made. This is because borrowed funds are typically used to finance the entire construction process, including the initial stages before construction expenditures are made.
Overall, capitalizing interest on self-constructed assets is an important aspect of accounting for these assets as it ensures that the asset’s cost reflects all necessary costs incurred to bring it to its intended use.
More Answers:
The Role of Reputation in Financial Success: How Intangible Assets Impact a Company’s Bottom LineOptimizing Your Bank Reconciliation Report: How to Include Unrecorded Electronic Fund Transfers (EFTs) in Your Financial Records
Maximizing Bank Reconciliation: How to Properly Account for Bank Service Fees and Reduce Company Balances