accounting case two

 accounting circumstance 2 Composition

MEMORANDO

To: Ms. Jane Becker, COO

From:

Subject: Interest Capitalization on New Expansion

Day: 10/30/13

Advantages

There has been a lot of recent distress over whether ARC Manufacturing should cash in the interest costs associated with the construction of the new manufacturing facility, and if you are obliged to do so. After extensive study, and by reviewing the types of procedures for capitalizing interest presented by the Federal Accounting Solutions Board (FASB), ARC can capitalize the interest, and is most likely required to accomplish that.

Capitalization of Interest

Interest on an asset need to meet numerous criteria being eligible for capitalization. First, the asset need to require a period of time to prepare this for its real use (FASB 835-20-15-01). After meeting this basic criterion, interest on the asset may possibly still be made a fortune if the advantage in construction is being made for you can actually own use (FASB 835-20-15-05). The interest through the construction in the new manufacturing facility for ARC is then eligible for capitalization since it meets both of these conditions. Employing another business to build the facility pertaining to ARC will not change ARC's ability to make profit the interest, as the building

continues to be being developed for use simply by ARC (FASB 835-20-15-05). ARC is also necessary to capitalize the interest on the facility, as the construction of the manufacturing facility is a under the radar project that includes a large amount of curiosity cost. Capitalizing this curiosity will provide an improved representation of what it actually costs to make the building (FASB 835-20-15-03).

Capitalization of Interest on Land

In the event ARC should purchase the arrive at which the service will be constructed, costs associated with acquiring the land could possibly be capitalized as the land will be developed intended for the construction in the plant. These types of interest costs incurred during the period of construction happen to be included within the cost basis of the plant, not really the terrain (FASB 835-20-15-08)....


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