Interest may be included in the acquisition cost of a plant asset Group of answer choicesduring the construction period of a self-constructed asset.if the asset is purchased on creditif the asset acquisition is financed by a long-term note payableif it is a part of a lump-sum purchase.
Question
Interest may be included in the acquisition cost of a plant asset Group of answer choicesduring the construction period of a self-constructed asset.if the asset is purchased on creditif the asset acquisition is financed by a long-term note payableif it is a part of a lump-sum purchase.
Solution
Interest can be included in the acquisition cost of a plant asset in the following scenarios:
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During the construction period of a self-constructed asset: If a company is constructing an asset for its own use, the interest cost incurred during the period of time required to complete and prepare the asset for its intended use is part of the cost of the asset. This is because the interest cost during this period is considered a necessary cost to get the asset ready for use.
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If the asset is purchased on credit: Generally, if an asset is purchased on credit, the interest cost is not capitalized. However, if the credit period exceeds the normal credit terms or if the payment is deferred beyond the normal payment date, then the interest cost can be capitalized.
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If the asset acquisition is financed by a long-term note payable: If a company borrows funds specifically for the purpose of obtaining a particular asset and incurs interest cost because of that borrowing, the interest cost can be capitalized.
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If it is a part of a lump-sum purchase: If a company purchases several assets for a single, lump-sum price, the purchase price (including any interest cost) is allocated among the various assets acquired based on their relative fair values. If the interest cost is included in the lump-sum price, it is part of the cost of the assets acquired.
Similar Questions
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The financing activities of a firm involve the acquisition of funds from investors and creditors to start or sustain a business operation.Select one:TrueFalse
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