【正文】 nnot exceed total interest costs incurred during the entire reporting period c) The interest earned on these funds must be recognized as revenue and may not be offset against the interest expense to be capitalized 17 B Capitalization of Interest Costs 6. Example Assume the pany is constructing an asset which qualifies for interest capitalization. By the JULY BEG $3,000,000 had spent on the asset, and an additional $800,000 was spent during JULY. The following debt was outstanding during the entire month a) A loan of $2,000,000, interest of 1% per month, specifically related to the asset b) A N/P of $1,500,000, interest of % per month c) Bonds PAY of $1,000,000, interest of 1% per month Avoidable interest = Weightedavg. acc. Exp. X Interest rate X Construction period Answer: ① ② ③ 18 B Capitalization of Interest Costs 6. Example Assume the pany is constructing an asset which qualifies for interest capitalization. By the JULY BEG $3,000,000 had spent on the asset, and an additional $800,000 was spent during JULY. The following debt was outstanding during the entire month a) A loan of $2,000,000, interest of 1% per month, specifically related to the asset b) A N/P of $1,500,000, interest of % per month c) Bonds PAY of $1,000,000, interest of 1% per month Weightedavg acc. exp = (Acc Exp BEG + Acc Exp END) / 2 Answer: = ($3,000,000 + $3,800,000) / 2 = $3,400,000 ① 19 B Capitalization of Interest Costs 6. Example Assume the pany is constructing an asset which qualifies for interest capitalization. By the JULY BEG $3,000,000 had spent on the asset, and an additional $800,000 was spent during JULY. The following debt was outstanding during the entire month a) A loan of $2,000,000, interest of 1% per month, specifically related to the asset b) A N/P of $1,500,000, interest of % per month c) Bonds PAY of $1,000,000, interest of 1% per month Interest rate = % for $2,000,000 loan specifically related to the asset Answer: ② Avg interest rate = $1,500,000 X % + $1,000,000 X 1% $1,500,000 + $1,000,000 Int Exp for loan 1 + Int Exp for loan 2 + … Loan 1 + Loan 2 + … = = % 20 B Capitalization of Interest Costs 6. Example Assume the pany is constructing an asset which qualifies for interest capitalization. By the JULY BEG $3,000,000 had spent on the asset, and an additional $800,000 was spent during JULY. The following debt was outstanding during the entire month a) A loan of $2,000,000, interest of 1% per month, specifically related to the asset b) A N/P of $1,500,000, interest of % per month c) Bonds PAY of $1,000,000, interest of 1% per month Answer: Avoidable interest = $2,000,000 X 1% + (3,400,000 $2,000,000) X % = $38,200 Act interest incurred = $2,000,000 X 1% + $1,500,000 X % + $1,000,000 X 1% = $52,500 Since avoidable interest act interest incurred, all amount $38,200 should be capitalized 21 B Capitalization of Interest Costs 6. Example Assume the pany is constructing an asset which qualifies for interest capitalization. By the JULY BEG $3,000,000 had spent on the asset, and an additional $800,000 was spent during JULY. The following debt was outstanding during the entire month a) A loan of $2,000,000, interest of 1% per month, specifically related to the asset b) A N/P of $1,500,000, interest of % per month c) Bonds PAY of $1,000,000, interest of 1% per month Answer: To record interest expense paid Dr. Interest Exp $38,200 Cr. Cash $38,200 To record interest capitalization Dr. Asset $38,200 Cr. Interest Exp $38,200 22 Question Time… 1. Cole Co. began constructing a building for its own use in 01/01/08. During 2020, Cole incurred interest of $50,000 on specific construction debt, and $20,000 on other borrowings. Interest puted on the weightedavg amount of accumulated expenditures for the building during 2020 was $40,000. What amount of interest cost should Cole capitalize? a) $20,000 b) $40,000 c) $50,000 d) $70,000 Answer: b) 23 C. Nonmoary Exchange 24 C Nonmoary Exchange 1. Definition a) A reciprocal transfer wherein the transferor has no substantial continuing involvement in the asset, and risks and rewards of ownership are transferred. b) Do not apply to: ? Business binations ? Transfers of nonmoary assets between panies under mon control ? Acquisition of nonmoary assets/services for the issuance of mon stock ? Stock issued or received in stock dividends or stock splits ? Transfer of assets in exchange for equity interest etc., 25 C Nonmoary Exchange 2. a) Recorded using the FMV of asset exchanged (given up) FMV 1 ? If FMV of asset exchanged not determinable, or (Assume FMV received = FMV exchanged) ? If FMV of asset received is more clearly evident b) Recorded using the FMV of asset received FMV 2 c) Loss from nonmoary exchange is always recognized d) Gains are recognized if the exchange is measured FMV or boot (cash) is received Fair value approach 26 C Nonmoary Exchange 3. Exceptions a) Measured using NBV of asset exchanged (given up) ? If neither FMV is determinable ① ? If the transaction lacks mercial substance ② ? Or if it is an exchange transaction to facilitate sales to customers ③ b) When: Book value approach The exchange has mercial substance if the configuration of entity’s cash flows (amount, timing and uncertainty) are significantly different as a result of exchange. 27 C Nonmoary Exchange 4. Situation 1: a) Conditions ? Record asset received FMV of asset exchanged ? G/L determination ? FMV of asset exchanged (given up) is determinable ? The transaction has mercial substance and is not to facilitate sale ? No boot involved b) Accounting tre