Question

Which of the following is the recommended approach to handling interest incurred in financing the construction of property, plant and equipment?

a. Capitalize only the actual interest costs incurred during construction.
b. Charge construction with all costs of funds employed, whether identifiable or not.
c. Capitalize no interest during construction.
d. Capitalize interest costs equal to the prime interest rate times the estimated cost of the asset being constructed.

Answer 1

The recommended approach to handling interest incurred in financing the construction of property, plant and equipment is to a. capitalize only the actual interest costs incurred during construction.

Step-by-step explanation:

The recommended approach to handling interest incurred in financing the construction of property, plant and equipment is to a. capitalize only the actual interest costs incurred during construction.

This means that the interest costs directly attributable to the construction project should be added to the cost of the assets being constructed.

By capitalizing only the actual interest costs, the company can accurately reflect the cost of financing the construction project and include it in the cost of the assets.