p. 474-481

1.Assign no fixed overhead to the cost of the constructed asset ,2. Assign a portion of all overhead to the construction process ,

the major argument for this treatment is that indirect overhead is generally fixed in nature, it doesn?t increase as a result of constructing one?s own plant or equipment. This approach assumes that the company will have the same costs regardless of whether it constructs the asset or not. Therefore, to charge a portion of the overhead costs to the equipment will normally reduce current expenses and consequently overstate income of the current period

is appropriate if one believes that costs attach to all products and assets manufactured or constructed. Under this approach, a company assigns a portion of all overhead to the construction process, as it would to normal production. Advocates say that failure to allocate overhead costs understates the initial cost of the asset and results in an inaccurate future allocation

pro rata portion of the fixed overhead to determine its cost. Companies use this treatment extensively because many believe that it results in a better matching of costs with revenues

true

(interest is considered a cost of financing and not a cost of construction in this approach. People say that if the company had used stock (equity) financing instead of debt financing it wouldn?t incur the costs, but other say that the use of cash, whatever its source, has an associated implicit interest costs, which should not be ignored)

this method says that the cost of construction should include the cost of financing, whether by debt or equity, or cash. People for this idea say that all costs necessary to get an asset ready for its intended use, included interest are part of the asset?s cost, but opposers say that imputing cost of equity capital stock is subjective and outside the framework of a historical cost system)

this is somewhat the same as number 2 except that it says that only real interest should be counted. Thus, assets financed with debt would have a higher cost than the same asset financed with equity. Opposers say this isn?t fair because the cost of the asset should be the same no matter how its financed.)

3. Capitalize only the actual interest costs incurred during construction

because the historical cost of acquiring an asset includes all costs incurred to bring the asset to the condition and location necessary for its intended use.

-to qualify for interest capitalization assets must require a period of time to get them ready for their intended use. Capitalization starts when the first expenditure is made and goes until the asset is ready for its intended use. Assets that qualify for interest capitalization are self constructed assets that are under construction for the company?s own use and assets intended for sale or lease that are constructed or otherwise produced as discrete projects (ships or real estate). Assets that DON?T qualify for interest capitalization are A. assets that are un use or ready for their intended use B. assets that the company doesn?t use in its earnings activities and that aren?t undergoing the activities necessary to get them ready for use. (ie) assets not used because of obsolescence, excess capacity, or need for repair

the period of time during which a company must capitalize interest. It begins with the presence of the following 3 conditions: expenditures for the assets have been made, activities that are necessary to get the asset ready for its intended use are in progress, and interest cost is being incurred. Interest capitalization continues as long as these 3 conditions are present. The period ends when the asset is substantially complete and ready for its intended use