Final answer:
In the notes to the financial statements, the amount of interest capitalized should be disclosed as a separate line item. Interest revenue from temporarily invested excess funds borrowed to finance the construction of assets should be accounted for as interest income.
Step-by-step explanation:
In the notes to the financial statements, the amount of interest capitalized should be disclosed as a separate line item. This provides transparency and allows stakeholders to understand the impact of capitalized interest on the financial position of the company. For example, the disclosure might state 'Interest capitalized during the year: $X'.
Interest revenue from temporarily invested excess funds borrowed to finance the construction of assets should be accounted for as interest income. This revenue should be recognized in the income statement as it is earned. The amount of interest revenue earned can be disclosed separately or included within the overall interest income line item.