assets employed in earnings activities

Broad Transactions1

1. 835-912Contractors—Federal Government835 Interest

   This Subtopic tells federal government contractors when interest cost may (and may not) be capitalized. Because assets built under contracts where revenue is recognized over time are "employed in the earnings activities" of the contractor (and often involve routinely produced inventories), interest capitalization is prohibited for those long-term contracts. Only when revenue is recognized at a point in time and fulfillment costs are capitalized as an asset under Subtopic 340-40 can those costs be qualifying assets for interest capitalization, and then the investment is limited to uncollected receivables net of related non-interest-bearing liabilities.