AFM291 Chapter Notes - Chapter 8: Capitalization Rate, Interest Rate, Impaired Asset

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Cost of the item can be measured reliably: enterprises can capitalize all costs required to acquire or to construct the asset and to prepare it for its intended use, self-construction costs. Companies may built their own ppe: difficulties deciding whether an activity is part of the construction and which asset it belongs. Some costs may be beneficial to multiple assets. An entity shall recognize other borrowing costs as an expense in the period in which it incurs them. Interest rate is evident in the loan agreement when an entity borrows specifically for construction. Interest may exceed the actual total borrowing cost in the period: amount of interest capitalized would be capped at the amount of interest. Capitalization ends when the item is ready for its intended use. Enterprises should expense expenditures that would normally be considered repairs and maintenance. Insignificant costs relative to the value of the ppe.

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