When a firm constructs its own buildings or equipment:
A) it recognizes the labor, material, and overhead costs incurred as an asset.
B)U.S.GAAP and IFRS require firms to include, or capitalize, interest costs during construction in the cost of a self-constructed asset.
C) it recognizes the labor, material, and overhead costs incurred as a period expense.
D)U.S.GAAP and IFRS require firms to expense interest costs incurred during construction of a self-constructed asset.
E)both choices a and b are correct.

Question

Quizplus · Accepted Answer

When a firm constructs its own buildings or equipment, it capitalizes the labor, material, and overhead costs incurred during the construction as an asset. Both U.S. GAAP and IFRS also require firms to capitalize interest costs incurred during the construction period as part of the cost of the asset. This approach aligns with the capitalization principle, where costs that are expected to provide future economic benefits are recorded as assets.

When a Firm Constructs Its Own Buildings or Equipment