A company is constructing an asset for its own use.Construction began in 2010.The asset is being financed entirely with a specific new borrowing.Construction expenditures were made in 2010 and 2011 at the end of each quarter.The total amount of interest cost capitalized in 2011 should be determined by applying the interest rate on the specific new borrowing to the

Question

Quizplus · Accepted Answer

When determining the interest cost to be capitalized, the average accumulated expenditures for the asset in the period of time when the borrowing was outstanding should be used. This is known as the weighted-average accumulated expenditures method. Therefore, choice B (average accumulated expenditures for the asset in 2010 and 2011) is the best option.

A Company Is Constructing an Asset for Its Own Use