A company is constructing an asset for its own use.Construction began in 2006.The asset is being financed entirely with a specific new borrowing.Construction expenditures were made in 2006 and 2007 at the end of each quarter.The total amount of interest cost capitalized in 2007 should be determined by applying the interest rate on the specific new borrowing to the

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Quizplus · Accepted Answer

The interest cost should be capitalized based on the average accumulated expenditures for the asset in 2006 and 2007. This is because interest cost should only be capitalized during the period of time when expenditures are being made to construct the asset. By taking the average of the accumulated expenditures for both years, it ensures that the interest cost is being allocated properly over the entire period of construction.

A Company Is Constructing an Asset for Its Own Use