The capitalization of interest in the acquisition cost of assets during construction
A)reduces otherwise reportable interest expense.
B)increases net income during periods of construction.
C)results in higher depreciation charges, reducing net income.
D)delays expense recognition from the times of borrowing to the times of using the asset.
E)all of the above

Question

Quizplus · Accepted Answer

Capitalizing interest as part of the acquisition cost of assets during construction reduces the interest expense reported in the income statement, thereby increasing net income during the construction period. This capitalized interest is then allocated over the useful life of the asset through depreciation, resulting in higher depreciation expenses and thus reducing net income over time. Additionally, this practice delays the recognition of interest expense from the period of borrowing to the period(s) when the asset is in use, aligning the expense with the asset's revenue-generating period.

The Capitalization of Interest in the Acquisition Cost of Assets