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Statement No. 34
Capitalization of Interest Cost
STATUS
Issue Date: October 1979
Effective Date: For fiscal years beginning after December 15, 1979
Affects: Amends APB 21, paragraphs 15 and 16
Amends FAS 13, paragraph 12
Affected by: Paragraph 5 superseded by FAS 71
Paragraphs 8 and 9 amended by FAS 42
Paragraphs 9, 10, and 20 amended by FAS 58
Paragraphs 10, 13, and 17 amended by FAS 62
Paragraph 19 amended by FAS 121
Other Interpretive Pronouncements: FIN 33
FTB 81-5 (Superseded by FAS 62)
Abbreviations for Accounting Pronouncements
FAS - FASB Statements
FIN - FASB Interpretations
FTB - FASB Technical Bulletins
APB - APB Opinions
AIN - AICPA Interpretations
ARB - Accounting Research Bulletins
CON - FASB Concepts
EITF - EITF Issues
Q&A - FASB Implementation Guides
SUMMARY
This Statement establishes standards for capitalizing interest cost as part of the historical cost of acquiring certain assets. To qualify for interest capitalization, assets must require a period of time to get them ready for their intended use. Examples are assets that an enterprise constructs for its own use (such as facilities) and assets intended for sale or lease that are constructed as discrete projects (such as ships or real estate projects). Interest capitalization is required for those assets if its effect, compared with the effect of expensing interest, is material. If the net effect is not material, interest capitalization is not required. However, interest cannot be capitalized for inventories that are routinely manufactured or otherwise produced in large quantities on a repetitive basis.
The interest cost eligible for capitalization shall be the interest cost recognized on borrowings and other obligations. The amount capitalized is to be an allocation of the interest cost incurred during the period required to complete the asset. The interest rate for capitalization purposes is to be based on the rates on the enterprise's outstanding borrowings. If the enterprise associates a specific new borrowing with the asset, it may apply the rate on that borrowing to the appropriate portion of the expenditures for the asset. A weighted average of the rates on other borrowings is to be applied to expenditures not covered by specific new borrowings. Judgment is required in identifying the borrowings on which the average rate is based.
Copyright by Financial Accounting Standards Board. All Rights Reserved. Used by Permission.
©2000 New York State Society
of Certified Public Accountants. Legal Notices.
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