One financial accounting issue encountered when a companyconstructs its own plant is whether the interest coston funds borrowed to finance construction should becapitalized and then amortized over the life of the assetsconstructed. What is the justification for capitalizingsuch interest?

One financial accounting issue encountered when a companyconstructs its own plant is whether the interest coston funds borrowed to finance construction should becapitalized and then amortized over the life of the assetsconstructed. What is the justification for capitalizingsuch interest?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

One financial accounting issue encountered when a company
constructs its own plant is whether the interest cost
on funds borrowed to finance construction should be
capitalized and then amortized over the life of the assets
constructed. What is the justification for capitalizing
such interest?

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