Answer:
To capitalize, we must consider the following aspects:
1. Assets that meet the qualifications
To qualify as capitalization of interest, the asset must have a period of time to prepare it for use.
2. Capitalization Period
The capitalization period is the period of time in which interest must be capitalized which starts when the following three conditions occur.
- Expenditures for assets have been issued.
- Activities needed to prepare assets for use are ongoing.
- Interest costs have been incurred.
3. Amount to be capitalized.
The amount of interest to be capitalized is limited to the lowest actual cost of interest incurred during the period or avoidable interest. Avoidable interest is the number of interest costs during the period which theoretically can be avoided if the expenditure to buy assets is not carried out.