capitalization rate

Broad Transactions1

1. 835-20Capitalization of Interest835 Interest

   ASC 835-20 requires interest cost incurred while a qualifying asset is being readied for its intended use to be capitalized as part of the asset's historical cost, on the theory that such interest is an avoidable cost caused by the acquisition. Qualifying assets include assets constructed for an entity's own use, discrete projects built for sale or lease, and equity-method investments in investees that have not yet begun planned principal operations; routinely mass-produced inventory, assets already in use or idle, and gift/grant-funded assets are excluded. The amount capitalized equals the capitalization rate (rate on specific new borrowing, then weighted average of other borrowings) applied to average accumulated expenditures, capped at total interest cost incurred in the period.