ASC 835, Interest, contains three Subtopics:

  • ASC 835-10, Overall, which merely points to other topics with guidance on interest
  • ASC 835-20, Capitalization of Interest, which provides guidance on capitalization of interest in connection with an asset investment
  • ASC 835-30, Imputation of Interest, which provides guidance where imputation of interest is required

Scope and Scope Exceptions

All assets that require a time period to get ready for their intended use should include a capitalized amount of interest. However, accomplishing this level of capitalization would usually violate a reasonable cost/benefit test because of the added accounting and administrative costs that would be incurred. In many such situations, the effect of interest capitalization would be immaterial. Accordingly, interest cost is only capitalized as a part of the historical cost of the following types of assets (qualifying assets) when such interest is considered to be material. (ASC 835-20-15-2) Common examples include:

  • Assets constructed for an entity’s own use or for which deposit or progress payments are made
  • Assets produced as discrete projects that are intended for lease or sale
  • Equity-method investments when the investee is using funds to acquire qualifying assets for principal operations that have not yet begun

    (ASC 835-20-15-5)

Many entities use threshold levels to determine whether or not interest costs related to inventory or property, ...

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