Question

please write 2-3 paragraphs(essay) about: Explain why we should capitalize construction peroid interest in Oil&Gas producing entities accouding to Statment Number34 (Capitalizaation of Inteerest cost) standard.

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CAPITALIZATION-OF-INTEREST-COST ( ISSUED 10//79 )

Summary

This Statement establishes standards for capitalizing interest cost as part of the historical cost of acquiring certain assets. To qualify for interest capitalization, assets must require a period of time to get them ready for their intended use. Examples are assets that an enterprise constructs for its own use (such as facilities) and assets intended for sale or lease that are constructed as discrete projects (such as ships or real estate projects). Interest capitalization is required for those assets if its effect, compared with the effect of expensing interest, is material. If the net effect is not material, interest capitalization is not required. However, interest cannot be capitalized for inventories that are routinely manufactured or otherwise produced in large quantities on a repetitive basis.

The interest cost eligible for capitalization shall be the interest cost recognized on borrowings and other obligations. The amount capitalized is to be an allocation of the interest cost incurred during the period required to complete the asset. The interest rate for capitalization purposes is to be based on the rates on the enterprise's outstanding borrowings. If the enterprise associates a specific new borrowing with the asset, it may apply the rate on that borrowing to the appropriate portion of the expenditures for the asset. A weighted average of the rates on other borrowings is to be applied to expenditures not covered by specific new borrowings. Judgment is required in identifying the borrowings on which the average rate is based.

Answer 1

Answer:  

Promoted intrigue is the expense of getting to procure or develop a long haul resources . Not at all like an intrigue cost caused for some other buy, promoted intrigue must not be expensed on the pay articulation of an organization's budgetary proclamations, and rather, firms underwrite it, which means such intrigue increment the cost premise of a long haul resources on an accounting report. Promoted intrigue appears on an organization's pay explanation through an intermittent deterioration cost recorded on the related long haul resource all through its valuable life.

Promoted intrigue is a piece of chronicled cost of obtaining resources that require a timeframe to set them up for their expected utilize. Since many organization fund the obligation, the sound accounting standards enable firms to abstain from expensing enthusiasm on such obligation, and incorporate it on their monetary record as a feature of long haul resources. Ordinary models of long haul resources for which underwriting interest is permitted incorporate different generation offices, land and ships.

From the point of view of gathering bookkeeping, promoting premium enables a client of money related proclamations to get a precise proportion of the obtaining cost of an advantage and have a superior portion of expenses to income in the periods when a procured resources is being utilized. Promoted intrigue must be looked if its effect on organization's money related articulations is material. Something else, intrigue capitalization isn't required.