Why this is mistaken
The mistaken model
The mistake sees “construction” and moves the entire interest line into the asset. That shortcut erases asset eligibility, the capitalization window, expenditure timing, borrowing layers, and the ceiling imposed by actual interest cost.
Corrective approach
Establish scope and dates first. Compute weighted-average accumulated expenditures for the active capitalization period. Apply supported rates and layers, compare avoidable interest with actual interest, and capitalize the lower supported amount.
ASC 835-20-25-3 requires expenditures, preparation activities, and interest cost to coexist before the capitalization period begins.
Paragraph 25-4 addresses suspensions. Paragraph 25-5 addresses the end of the period.
Paragraph 30-6 sets the interest-incurred ceiling. Keep those decisions separate in the working paper so one true condition cannot stand in for the others.
When this mistake may appear
- A construction packet supplies dated expenditures, borrowing rates, and total actual interest.
Your work may contain this mistake if:
- Uses total debt or total interest as the capitalized amount.
- Ignores when expenditures were outstanding or construction activity stopped.
- Reports avoidable interest above actual interest.