In short
An asset a company builds for its own use is recorded at the cost of materials, labor and overhead, plus interest capitalized during construction.
Key takeaways
- Overhead may be only the incremental amount or a full share of fixed overhead, applied consistently.
- If total cost exceeds the asset's fair value, the excess is expensed.
- No profit is recognized for building it more cheaply than buying it.
Where it's tested
FAR: Property, Plant & Equipment — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
During construction of a qualifying asset, the amount of interest capitalized is the: