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May 09, 2023
  1. To get a complete picture of the acquisition cost of the asset it is necessary to capitalize the interest. Expenses on interest should be calculated along with the cost of acquiring an asset. The amount of capitalized interest should be amount spend when the expenditure was made for the asset. It is not compulsory to capitalize the cost of interest but the necessity arises when the asset demands expenditure and time to construct thereby assembling an important amount of interest cost. A significant amount of administrative and accounting cost is related with interest cost capitalization. The capitalization of interest cost is done for assets that include assets for entity’s use, assets on which payments have been made, assets intended for leasing out or sale and investments made under the equity method. Codification topic 835-20 deals with the capitalization of assets (Accountinginfo, 2019). The capitalization period begin when the interest cost is bearded, construction works are in progress and expenditure is incurred. The period of capitalization ends when is asset is complete and is ready for the use intended

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