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Section 3220: Capitalization of Interest Costs
[U.S. GAAP Codification Topic]
835 Interest
835-10 Overall
835-20 Capitalization of interest
835-30 Imputation of interest
[U.S. GAAP before the Codification]
SFAS 34, October 1979, Capitalization of Interest Cost
SFAS 42, November 1980, Determining Materiality for Capitalization of Interest Cost, an amendment of FASB Statement No. 34
SFAS 58, April 1982, Capitalization of Interest Cost in Financial Statements That Include Investments Accounted for by the Equity Method, an amendment of FASB Statement No. 34
SFAS 62, June 1982, Capitalization of Interest Cost in Situations Involving Certain Tax-Exempt Borrowings and Certain Gifts and Grants, an amendment of FASB Statement No. 34
1. For certain qualifying assets, interest costs are capitalized
--> and included in determining the acquisition cost of asset
2. Qualifying assets for interest capitalization
(1) Assets that are constructed or produced
--> for the entity's own use
(2) Assets that are constructed or produced
--> for sale or lease as discrete projects
3. Interest cost is not capitalized
--> for inventories
4. Amount of interest to be capitalized
(1) Amount to be capitalized
--> average accumulated expenditures x capitalization rate
(2) Total amount of interest cost capitalized
--> cannot exceed the total interest cost incurred
5. Capitalization rate
(1) Specific borrowings for the construction
--> interest rate for specific borrowings
(2) For the average accumulated expenditures over the specific borrowings
--> weighted average interest rate of other borrowings
6. Capitalization period
(1) Capitalization begins when (a), (b), (c) occur
(a) Interest cost is incurred
(b) Construction activities are in progress
(c) Expenditures are incurred
(2) Capitalization ends when (d) and (e) occur
(d) The asset is substantially complete
(e) The asset is ready for its intended use
7. Interest income is recognized in earnings
--> 320-10-35: Interest income from investments
8. Interest cost is recognized using interest method
--> 470-10-35: Interest cost of debt
9. International Financial Reporting Standards (IFRS)
IAS 34: Borrowing Costs
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