Capitalisation of Interest?

Question

A loan was taken from the bank to finance the acquisition of an asset. The asset was acquired for investment, but at the same time, it was rented out to earn rental income. Can we still capitalise the interest?

Answer 1

I dont think so. If you think about it, the interest could probably have been capitalized had the company built the asset from scratch. Considering that the asset was purchased, I would imagine that the interest payments for that asset would have to be expensed.

Further, an additional point to note in this example is the type of the company. Is the asset that was purchased in the same line of business of the company, or is it investment outside of its area of operation. For example, is this company in property management, or did the company purchase this building to invest for other purposes.