Question

If the amount of interest calculated to be capitalized on a self-constructed asset is greater than the amount actually incurred, then?

1) the interest capitalized is limited to the actual interest incurred.
2) the full amount of interest calculated is capitalized.
3) no interest can be capitalized.
4) the implicit rate must be used.

Answer 1

If the amount of interest calculated to be capitalized on a self-constructed asset is greater than the amount actually incurred, the interest capitalized is limited to the actual interest incurred.

Step-by-step explanation:

If the amount of interest calculated to be capitalized on a self-constructed asset is greater than the amount actually incurred, the interest capitalized is limited to the actual interest incurred. In other words, only the amount of interest that was actually paid or incurred can be capitalized. This means that the full amount of interest calculated cannot be capitalized, and no interest can be capitalized beyond what was actually incurred.