--%>
Assignment Help - homework help

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 : Define Process and Process Costing

    Define Process and Process Costing: Process: The organized process of transforming inputs (that is, people, equipment, techniques, materials, and atmosphere), to outputs (that is, products or servi

    		•
  • Q : Elements of Partnership Three main

    Three main elements of Partnership: A) Carrying on of a business: • A ‘business’ is any trade, occupation or pr

    		•
  • Q : What is Direct Cost Direct Cost : The

    Direct Cost: The cost of resources directly used by an activity. The direct costs are assigned to actions by direct drawing of units of resources used by individual actions. A cost which is particularly recognized with a single cost o

    		•
  • 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 : Define Cost Object Cost Object (also

    Cost Object (also referred to as Cost Objective): It is an activity, item, or output whose cost is to be computed. In a wide sense, a cost object can be an organizational division, task, a function, product, service, or a customer.

    		•
  • Q : Define Activity Activity : The real

    Activity: The real work task or step executed in generating and delivering products and services. The aggregation of actions executed within an organization which is helpful for the purpose of activity-based costing.

    		•
  • Q : Explain Cost Assignment Cost Assignment

    Cost Assignment: A procedure which identifies costs with activities, outputs, or another cost objects. In a wide sense, costs can be assigned to activities, processes, products, organizational divisions, and services. There are three

    		•
  • Q : Cash flows from operating activities

    The first section of the statement of cash-flow. Cash flows from operating activities include transactions (involving cash) that relate to the normal busi- ness activities of the entity. Cash-flows in this section usually involve cash and other current asset or curren

    		•
  • Q : Bank reconciliation statement Explain

    Explain the term bank reconciliation statement?

    		•
  • Q : Comparative-Advantage Approach to

    We study optimal government debt maturity in a model where investors derive monetary servicesfrom holding riskless short-term securities. In a simple setting where the government is the onlyissuer of such riskless paper, it trades off the monetary premium associated w

    		•