Question

When is interest not eligible to be capitalized as part of an asset's cost?

1) When it is incurred during the construction period
2) When it is incurred to acquire an asset that takes a substantial period of time to get ready for its intended use
3) When it is incurred to acquire an asset that is not ready for its intended use
4) When it is incurred to acquire an asset that is ready for its intended use

Answer 1

Interest is not eligible to be capitalized as part of an asset's cost when it is incurred during the construction period, when it is incurred to acquire an asset that takes a substantial period of time to get ready for its intended use, and when it is incurred to acquire an asset that is not ready for its intended use. However, when interest is incurred to acquire an asset that is ready for its intended use, it can be capitalized as part of the asset's cost.

Step-by-step explanation:

Interest is not eligible to be capitalized as part of an asset's cost when it is incurred during the construction period, when it is incurred to acquire an asset that takes a substantial period of time to get ready for its intended use, and when it is incurred to acquire an asset that is not ready for its intended use. However, when interest is incurred to acquire an asset that is ready for its intended use, it can be capitalized as part of the asset's cost.