A company is constructing an asset for its own use.Construction began in 2017.The asset is being financed entirely with a specific new borrowing.Construction expenditures were made in 2017 and 2018 at the end of each quarter.The total amount of interest cost capitalized in 2018 should be determined by applying the interest rate on the specific new borrowing to the

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Under the capitalization of interest costs, the company needs to capitalize the interest expense incurred during the construction period as part of the cost of the constructed asset. To calculate the interest cost, the company needs to use the weighted-average accumulated expenditures over the construction period, as it represents a better approximation of the actual cost incurred during the period. Therefore, the total amount of interest cost capitalized in 2018 should be determined by applying the interest rate on the specific new borrowing to the weighted-average accumulated expenditures for the asset in 2017 and 2018.

A Company Is Constructing an Asset for Its Own Use