Question

Capitalizing interest on a self-constructed asset as a cost to get the asset ready for its intended use is consistent with which principle?

1) conservatism
2) faithful representation
3) the historical cost principle
4) predictive value

Answer 1

The historical cost principle is the principle that is consistent with capitalizing interest on a self-constructed asset.

Step-by-step explanation:

The principle that is consistent with capitalizing interest on a self-constructed asset as a cost to get the asset ready for its intended use is the historical cost principle. This principle states that assets should be recorded at their original cost, which includes all costs necessary to make the asset usable. Capitalizing interest aligns with this principle as it considers the interest cost incurred during the construction of the asset.