In most cases, initial application of SOP 98-5 should be reported as the cumulative effect of a change in accounting principle. Use E10-3 to review determining the original cost of intangible assets. Costs of internally developing or of maintaining goodwill are expensed as incurred. Goodwill is recorded if the purchase price of a company is greater than the fair value of its net assets. Interest should be capitalized during the capitalization period .
Capitalization ends when the asset is complete and ready for use.
This is the amount of interest incurred that could have been avoided if the asset had not been built. Steps in computing interest capitalization 1. The weighing is done by time. Weighted average capital expenditures are used in figuring avoidable interest. If average accumulated expenditures are greater than the amount of specific borrowings, use a weighted average interest rate incurred on other outstanding debt during the period to figure avoidable interest on the amounts greater than the specific borrowings.