Suppose a firm builds a building using a loan (debt), the interest is capitalized But, if the firm builds a building with its own money(no debt), then interest rate on existing related borrowings are taken into account(say 5 % for example)… Will this cost(opportunity cost of cash held) be expensed or capitalized and why? I think it should be capitalized
Anyone?
varundarji Wrote: ------------------------------------------------------- > > But, if the firm builds a building with its own > money(no debt), then interest rate on existing > related borrowings are taken into account(say 5 % > for example)… > > you are or are not taking out a loan, if you are, any interest you accrue from taking out a loan during the construction phase will be capitalized small johnson.
Im asking if the firm builds an asset without a loan, ie with its money, so will the opportunity cost of that cash be capitalized? For example:-- Say a firm built an asset for $1m dollars and interst rate in the Market is approx 5% if the company builds the asset with its OWN cash ( in one year) , will the balance sheet show an asset of $1m or $1m + $50,000…???
no
opportunity costs never go on financial statements…