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Avoidable interest example for dating


Companies finance construction of their capital-intensive assets either by raising new equity capital or arranging loans from banks or issue of bonds to bondholders. The interest expense also called borrowing cost incurred on the debt is effectively a cost of the asset and matching principle of accounting requires such costs to be capitalized and depreciated over the useful life of the asset.

Avoidable and Unavoidable Costs

This may include effective interest expense on debt, finance cost of a finance lease, etc. Not all interest costs are capitalized.

Instead, only such costs are capitalized that are incurred on qualifying Avoidable interest example for dating during the eligible capitalization period and that too only to a certain maximum limit.

In the context of capitalization of interest, a qualifying asset is an asset for which capitalization of borrowing cost is allowed. It is an asset that Avoidable interest example for dating substantial time is its construction, whether for internal use, sale or as an investment property. Typical examples of qualifying assets include plant, buildings, intangible assets, customized inventory, etc.

The calculation of capitalized interest depends on the actual financing arrangement. An asset may be financed by a loan raised specifically for the asset or by funds withdrawn from the general pool of funds available or a combination of both.

In general, calculation of capitalized interest involves the following steps:.

Answer to Capitalization of Interest,...

Capitalization period is the time period during which interest expense incurred on a qualifying asset is eligible for capitalization. Interest is eligible for capitalization when a the expenditures have been made, b activities related to construction of asset are ongoing, AND c interest cost is being incurred.

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