This free, guided checker walks your finance team through the key decision points for ASC 835-20 Capitalization of Interest Cost. Answer a few questions to see the likely treatment and the evidence to document.
Answer a few quick questions below. It is private - nothing is submitted or stored - and takes about a minute.
This tool is a high-level US GAAP screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
ASC 835-20-15-5 limits capitalization to assets that require a period of time to get ready for their intended use: own-use construction, discrete projects for sale or lease, and certain pre-operating equity method investments. The common trap is capitalizing interest on routine inventory with a long production cycle - repetitive, large-quantity production is excluded regardless of cycle length.
Routinely produced inventories are excluded from interest capitalization under ASC 835-20-15-6(a); expense interest as incurred.
Official guidance: FASB Accounting Standards Codification
ASC 835-20-15-6 excludes assets already in use or ready for use and assets that sit idle. Land is the recurring trap: land held for future development does not qualify while it is idle, but becomes part of a qualifying asset once development activities such as permitting, planning, or site preparation are actually in progress.
Assets in use, ready for use, or idle without preparation activities do not qualify under ASC 835-20-15-6(b) through (c); expense interest as incurred.
Official guidance: FASB Accounting Standards Codification
The capitalization period begins only when all three conditions are met simultaneously: expenditures made, activities in progress, and interest being incurred (ASC 835-20-25-3). Evaluate each condition monthly. The common trap runs both directions - starting too early because a contract was signed before any expenditure, or starting too late by ignoring preconstruction activities such as permitting and design, which ASC 835-20-25-4 treats as qualifying activities.
The capitalization period has not begun because no expenditures have been made (ASC 835-20-25-3(a)); expense interest until all three conditions are met. The capitalization period has not begun because readiness activities are not in progress (ASC 835-20-25-3(b)); expense interest until all three conditions are met. No interest cost is being incurred (ASC 835-20-25-3(c)); there is no avoidable interest to capitalize this period.
Official guidance: FASB Accounting Standards Codification
ASC 835-20-25-5 requires capitalization to stop while substantially all activities are suspended, but carves out brief interruptions, delays imposed by external parties, and delays inherent in the asset acquisition process. Document the cause and expected duration of any pause - a weather delay on a construction site is inherent to the process, while a management decision to halt the project pending financing is a suspension.
Capitalization ceases during a suspension of substantially all activities and resumes when activities resume (ASC 835-20-25-5).
Official guidance: FASB Accounting Standards Codification
Capitalization ends at substantial completion and readiness for intended use, not at final completion or placed-in-service for tax purposes (ASC 835-20-25-6). For projects completed in independently usable parts, stop capitalizing on each part as it becomes ready (ASC 835-20-25-7); for assets that must be completed in their entirety before any part can be used, continue until the whole asset is ready. Holding a completed asset while awaiting a tenant or buyer does not extend the period.
The capitalization period ends when the asset is substantially complete and ready for its intended use (ASC 835-20-25-6).
Official guidance: FASB Accounting Standards Codification
The amount capitalized is the interest that theoretically could have been avoided if expenditures for the asset had not been made (ASC 835-20-30-2), computed as a capitalization rate applied to average accumulated expenditures (ASC 835-20-30-3). Expenditures count only when they required cash, a transfer of other assets, or an interest-bearing liability, net of progress payments collected (ASC 835-20-30-7). A common trap is including accrued but unpaid costs in the expenditure base.
Use the interactive tool above to see how this applies to your situation.
Official guidance: FASB Accounting Standards Codification
ASC 835-20-30-6 caps capitalized interest in any period at the total interest cost the entity incurred in that period; in consolidated statements the ceiling is total consolidated interest cost. The trap is applying the test at the project level - the ceiling is an entity-level (or consolidated) limit across all qualifying assets combined, so aggregate avoidable interest from every project before comparing it to interest incurred.
Capitalize interest, limited to the total interest cost actually incurred in the period (ASC 835-20-30-6). Capitalize the computed avoidable interest as part of the asset's historical cost (ASC 835-20-30-2 through 30-3).
Official guidance: FASB Accounting Standards Codification
Send us your situation and one of our senior CPAs will review it with you - fixed fee, no surprises.
Contact Us