Final answer:
Costs incurred during the construction of a building such as the cost of the labor, materials, and interest on construction loan are typically capitalized. Repairs made to the building after it is already in use are considered maintenance expenses and are not capitalized; they are expensed in the period they occur.
Step-by-step explanation:
When constructing a building, certain costs are capitalized as part of the cost of the building. These costs are included on a company's balance sheet rather than being expensed on the income statement. Capitalizing these costs means that they will be spread out over the life of the building through depreciation.
The following items would typically be capitalized:
- Cost of the labor: The labor costs directly associated with the construction of the building.
- Materials: The raw materials used in the construction process.
- Interest on construction loan: The interest incurred during the construction period on money borrowed to finance the construction.
Meanwhile, repairs made to a building after it is in use are generally considered a maintenance expense and are not capitalized. These expenses are recorded as costs in the period in which they occur.