When funds are borrowed to pay for construction of assets that qualify for capitalization of interest, the excess funds not needed to pay for construction may be temporarily invested in interest-bearing securities. Interest earned on these temporary investments should be

Question

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Interest earned on temporary investments made during the construction of assets should be used to offset the interest cost incurred during the construction period. This is because the interest cost incurred during the construction period is required to be capitalized as part of the cost of assets being constructed. By offsetting the interest earned on temporary investments against the interest cost incurred during construction, the net interest cost to be capitalized can be determined accurately.

When Funds Are Borrowed to Pay for Construction of Assets