--%>

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 : Position analysis in a business What do

    What do you mean by the term position analysis in a business? Briefly illustrate it.

  • Q : What is Uncontrollable Cost What is

    What is Uncontrollable Cost: The cost over which an accountable manager has no persuade.

  • Q : Insurance premium in Arrears What are

    What are the Insurance premium in Arrears?

  • Q : Explain Performance Measurement

    Performance Measurement: A means of computing effectiveness, efficiency, and outcomes. A balanced performance measurement score-card comprises financial and non-financial measures focusing on the quality, cycle-time, and price. The performance measure

  • Q : The provision of management accounting

    explain how the provision of management accounting information can assist the management of a company with planning, controlling, decision making and communicating

  • Q : Capital expenditure Expenditure that

    Expenditure that increases the dollar amount of fixed assets on the balance sheet. These outlays either increase the value of assets already owned or add additional assets. The payments increase the future benefit of an asset by extending the life of the asset, increa

  • Q : What is Incremental Cost Incremental

    Incremental Cost: The raise or reduction in total costs which would result from a decision to raise or reduce output level, to add a service or task, or to modify any part of operations. This information aids in making decisions such

  • Q : Functions explain how the provision of

    explain how the provision of management accounting information can assist the management of a company with planning, controlling, decision making and communicating

  • Q : Reaping the benefits of IT What do you

    What do you mean by the term reaping the benefits of IT? Explain n brief?

  • Q : Evaluate the strategic options Identify

    Identify and evaluate the strategic options in brief?