--%>

Avoidable interest

 

The amount of interest that an organization would have avoided if it had not made the expenditures for an asset. Avoidable interest is calculated when an entity is self- constructing an asset. The cost of the asset can include material, labor, and overhead plus some interest. The company is allowed to capitalize lesser of the actual interest on borrowings for the project or the avoidable interests. The business calculates avoid- able interest based on  weighted-average  expenditures for  the project and on a rate. For the amount up to the actual borrowing, the entity usage the actual borrowing rate, and for the remainder it usage a weighted-average rate. Interest cannot be capitalized if the entity takes on debt to purchase the completed asset; it can only be capitalized in the case of self-constructed asset. The Financial Accounting Standards Board allows this because a contractor would borrow to build the project, adding the interest into the cost of project, so a purchased asset includes the builder's interest cost.

 

 

 

 

 

   Related Questions in Managerial Accounting

  • Q : Describe Trust Accounting Trust

    Trust Accounting: It is the "accounting of each and every item of income and expenditures which are employed to find out the amount that certain beneficiaries will obtain from the trust each year." Actually, it is equivalent to all the revenues receiv

  • Q : Illustrations of unethical and

    Write down a brief note on the illustrations of unethical and unacceptable actions?

  • Q : Number of Partners in Partnership What

    What is the maximum and minimum number of partners in each and every type of partnership? Answer: There must be at least two persons to build a Partnership. The maxi

  • Q : Features of partnership Write some main

    Write some main features of partnership? Answer: Essential elements or major features of Partnership are as follows: A) Two or m

  • Q : Partnership from Accounting point of

    Describe the status of partnership from an accounting point of view? Answer: From an accounting point of view, partnership is a separate business entity. From legal

  • Q : Main working areas of the coach

    Write a short note on the main working areas of the coach maintenance department?

  • Q : What do you mean by the term SWOT

    What do you mean by the term SWOT analysis? Explain in brief?

  • Q : Analysis on Business Profile BUSINESS

    BUSINESS PROFILES:Go to the following webpage by clicking on the link or by copying and pasting the URL into your web browser:After opening the link, you will see a small cover page of the West Newsmagazine’s publication titled “Business Profiles&rdq

  • Q : Classification of costs with examples

    describe how costs can be classified giving examples in each classification. explain how the different cost classifications can assist management in decision making