# ASC 835-20-30: Interest — Capitalization of Interest — 30 Initial Measurement Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/835/20/#30-initial-measurement) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:49:11.642Z to 2026-09-10T01:49:11.642Z Record version: sha256:91b529044b0331c8a68ee61e60fa42e5b4a4baee598257633332b814b8fd8554 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 835-20-30: 30 Initial Measurement [Read section](https://asc.understandingaccounting.org/asc/835/20/#30-initial-measurement) SEC content: no ##### [835-20-30-1](https://asc.understandingaccounting.org/asc/835/20/#835-20-30-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:11.642Z to 2026-09-10T01:49:11.642Z Record version: sha256:84e83c9bcdc89964ce3db542e326e9fbd33753055842144431434856f5d95b5a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section addresses the amount of [interest cost](https://asc.understandingaccounting.org/glossary/i/#interest-cost "Interest cost includes interest recognized on obligations having explicit interest rates, interest imputed on certain types of payables in accordance with Subtopic 835-30, and interest related to a finance lease determined in accordance with Topic 842. With respect to obligations having explicit interest rates, interest cost includes amounts resulting from periodic amortization of discount or premium and issue costs on debt.") to be capitalized as part of the initial investment in an asset. #### The Amount of Interest Cost to Be Capitalized ##### [835-20-30-2](https://asc.understandingaccounting.org/asc/835/20/#835-20-30-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:11.642Z to 2026-09-10T01:49:11.642Z Record version: sha256:04a0488e3d9f04e25826fa58a386df47470b01f02545f32ef9aed5b75021f25a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The amount of interest cost to be capitalized for qualifying assets is intended to be that portion of the interest cost incurred during the assets' acquisition periods that theoretically could have been avoided (for example, by avoiding additional borrowings or by using the funds expended for the assets to repay existing borrowings) if [expenditures](https://asc.understandingaccounting.org/glossary/e/#expenditures "Expenditures to which capitalization rates are to be applied are capitalized expenditures (net of progress payment collections) for the qualifying asset that have required the payment of cash, the transfer of other assets, or the incurring of a liability on which interest is recognized (in contrast to liabilities, such as trade payables, accruals, and retainages on which interest is not recognized).") for the assets had not been made. The notion of interest on borrowings as an avoidable cost does not require that the practicability of repaying individual borrowings be considered. ##### [835-20-30-3](https://asc.understandingaccounting.org/asc/835/20/#835-20-30-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:11.642Z to 2026-09-10T01:49:11.642Z Record version: sha256:ca3b62ea75d418f662cf43b4a8d30e374f6429f67387bc643854e86d50bd5f5c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The amount capitalized in an accounting period shall be determined by applying the [capitalization rate](https://asc.understandingaccounting.org/glossary/c/#capitalization-rate "Rate used to determine amount of interest to be capitalized in an accounting period.") to the average amount of accumulated expenditures for the asset during the period. The capitalization rates used in an accounting period shall be based on the rates applicable to borrowings outstanding during the period. If an entity's financing plans associate a specific new borrowing with a qualifying asset, the entity may use the rate on that borrowing as the capitalization rate to be applied to that portion of the average accumulated expenditures for the asset that does not exceed the amount of that borrowing. If average accumulated expenditures for the asset exceed the amounts of specific new borrowings associated with the asset, the capitalization rate to be applied to such excess shall be a weighted average of the rates applicable to other borrowings of the entity. ##### [835-20-30-4](https://asc.understandingaccounting.org/asc/835/20/#835-20-30-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:11.642Z to 2026-09-10T01:49:11.642Z Record version: sha256:159866004d166ab9ee46733e44332a07f1808f1cf71d8d8e05f5d1dd414c6586 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In identifying the borrowings to be included in the weighted average rate, the objective is a reasonable measure of the cost of financing acquisition of the asset in terms of the interest cost incurred that otherwise could have been avoided. Accordingly, judgment will be required to make a selection of borrowings that best accomplishes that objective in the circumstances. For example, depending on the facts and circumstances, it may be appropriate to include all borrowings of the parent entity and its consolidated subsidiaries or to include only the borrowings of the corporate entity constructing the qualifying asset. For some multinational entities, it may be appropriate for each foreign subsidiary to use an average of the rates applicable to its own borrowings. However, the use of judgment in determining capitalization rates shall not circumvent the requirement that a capitalization rate be applied to all capitalized expenditures for a qualifying asset to the extent that interest cost has been incurred during an accounting period. ##### [835-20-30-5](https://asc.understandingaccounting.org/asc/835/20/#835-20-30-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:11.642Z to 2026-09-10T01:49:11.642Z Record version: sha256:a18f2cb02598f34b1c04a74c37bf9c3913bf598fc50a9a5822b7b83c5f2a6ccf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Reasonable approximations of net capitalized expenditures may be used. For example, capitalized costs for an asset may be used as a reasonable approximation of capitalized expenditures unless the difference is material. Capitalized asset retirement costs do not qualify as expenditures. See Subtopic 410-20 for guidance on asset retirement obligations. ##### [835-20-30-6](https://asc.understandingaccounting.org/asc/835/20/#835-20-30-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:11.642Z to 2026-09-10T01:49:11.642Z Record version: sha256:08835bd111b979e470dbe2ae6103525d308f9e2820d431f52dd197eb71fcae6d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The total amount of interest cost capitalized in an accounting period shall not exceed the total amount of interest cost incurred by the entity in that period. In consolidated financial statements, that limitation shall be applied by reference to the total amount of interest cost incurred by the parent entity and consolidated subsidiaries on a consolidated basis. In any separately issued financial statements of a parent entity or a consolidated subsidiary and in the financial statements (whether separately issued or not) of unconsolidated subsidiaries and other investees accounted for by the equity method, the limitation shall be applied by reference to the total amount of interest cost (including interest on intra-entity borrowings) incurred by the separate entity. ##### [835-20-30-7](https://asc.understandingaccounting.org/asc/835/20/#835-20-30-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:11.642Z to 2026-09-10T01:49:11.642Z Record version: sha256:cf2963772e73e1341a45ac65b7a583681c25f5971386d3cc79f42513193cbd99 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Subtopic 815-25 addresses the effect of derivative gains and losses on the capitalization of interest under this Subtopic. See paragraphs [815-25-35-14](https://asc.understandingaccounting.org/asc/815/25/#815-25-35-14) and [815-25-55-52](https://asc.understandingaccounting.org/asc/815/25/#815-25-55-52) for guidance on the appropriate interest rate to be used in capitalizing interest related to fixed-rate debt designated as the hedged item in a fair value hedge. See paragraph [815-30-35-45](https://asc.understandingaccounting.org/asc/815/30/#815-30-35-45) for guidance on reclassifying amounts in accumulated comprehensive income related to a cash flow hedge of the variability of interest when the variable-rate interest on a specific borrowing is associated with an asset under construction and capitalized as a cost of that asset. ##### [835-20-30-8](https://asc.understandingaccounting.org/asc/835/20/#835-20-30-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:11.642Z to 2026-09-10T01:49:11.642Z Record version: sha256:5e37e61ca04f450c25a2898278aedc2691b46d5c3b324fa139ea56934f2649c3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If qualifying assets are financed with the proceeds of tax-exempt borrowings and those funds are externally restricted to the acquisition of specified qualifying assets or to service the related debt, the amount of interest cost capitalized shall be determined in accordance with paragraphs [835-20-30-10 through 30-12](https://asc.understandingaccounting.org/asc/835/20/#835-20-30-10) . ##### [835-20-30-9](https://asc.understandingaccounting.org/asc/835/20/#835-20-30-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:11.642Z to 2026-09-10T01:49:11.642Z Record version: sha256:fe022a56ed2f2c166fc7b1a43d38519351918a9a0aa12203c39a3e3e3d52dd44 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The timing and use of tax-exempt borrowings are generally an integral part of the decision to acquire the related asset, and the net interest cost from the date of borrowing to the time the acquired asset is substantially complete and ready for its [intended use](https://asc.understandingaccounting.org/glossary/i/#intended-use "Intended use of an asset embraces both readiness for use and readiness for sale, depending on the purpose of acquisition.") is an essential part of the cost of acquiring that asset. ##### [835-20-30-10](https://asc.understandingaccounting.org/asc/835/20/#835-20-30-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:11.642Z to 2026-09-10T01:49:11.642Z Record version: sha256:0da5efe45ff0d200f1d954847773c06d5e6873769e3130e84855ceca898d182e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Interest earned shall not be offset against interest cost in determining either capitalization rates or limitations on the amount of interest cost to be capitalized except in situations involving acquisition of qualifying assets financed with the proceeds of tax-exempt borrowings if those funds are externally restricted to finance acquisition of specified qualifying assets or to service the related debt. Those situations include many governmental borrowings and most governmentally sponsored borrowings (such as industrial revenue bonds and pollution control bonds). In such situations, interest earned generally is considered in and is significant to the initial decision to acquire the asset, and the capitalization of net interest cost provides a better measure of the entity's net investment in the qualifying assets. In those circumstances the association is direct and the funds flows from borrowing, temporary investment, and construction expenditures are so intertwined and restricted as to require accounting for the total net cost of financing as a cost of the qualifying assets. In all other situations, offsetting of interest income against interest cost is not appropriate. ##### [835-20-30-11](https://asc.understandingaccounting.org/asc/835/20/#835-20-30-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:11.642Z to 2026-09-10T01:49:11.642Z Record version: sha256:8bc16cf455b6eca0b402ebd5ded806684a1691c504fb268dbaa627342cb245b0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The amount of interest cost capitalized on qualifying assets acquired with proceeds of tax-exempt borrowings that are externally restricted as specified in the preceding paragraph shall be all interest cost of the borrowing less any interest earned on related interest-bearing investments acquired with proceeds of the related tax-exempt borrowings from the date of the borrowing until the assets are ready for their intended use. The interest cost and interest earned on any portion of the proceeds of the tax-exempt borrowings that are not designated for the acquisition of specified qualifying assets and servicing the related debt are excluded. ##### [835-20-30-12](https://asc.understandingaccounting.org/asc/835/20/#835-20-30-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:49:11.642Z to 2026-09-10T01:49:11.642Z Record version: sha256:3863663b8bb416b2a4a78f64e376c3009e3dc7b9a38c882768ea714b6f53c68c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Interest cost of a tax-exempt borrowing shall be eligible for capitalization on other qualifying assets of the entity when the specified qualifying assets are no longer eligible for interest capitalization. The entire interest cost on that portion of the proceeds that is available for other uses (such as refunding of an existing debt issue other than a construction loan related to those assets) is eligible for capitalization on other qualifying assets. See Example 1 (paragraph [835-20-55-4](https://asc.understandingaccounting.org/asc/835/20/#835-20-55-4)) for an illustration of this guidance.