Consistency in the Application of FASB Statement No. 34 Capitalization of Interest Cost

Date of Submission


Document Type


Degree Name

Master of Science in Accounting




Corporations--Finance, Interest, Assets ( Accounting)

Call No. at the Univ. of New Haven Library

AS 36 .N29 Acc. 1992 no.9


Statement of Financial Accounting Standards No. 34 Capitalization of Interest Cost establishes standards for the capitalization of interest costs as part of the historical cost of acquiring certain assets. The standard requires all enterprises to capitalize interest on certain qualifying assets. An asset qualifies for interest capitalization if a period of time is required to prepare the asset for its intended use. This includes assets constructed or otherwise produced for an enterprise's own use and assets that are constructed as discrete projects. The interest to be capitalized is calculated by either a specific borrowing rate or a weighted average to the percentage of qualifying expenditures. The standard also states that it need not be applied to immaterial items. Significant judgment is involved in identifying the weighted average rate and evaluating the materiality of interest to be capitalized. This has led to inconsistencies in published financial reports and limits the comparability of these statements. Even before Statement No. 34 was adopted in October of 1979, accounting professionals and financial statement users were requesting a review of the standard by FASB to either halt the capitalization requirements of SFAS No. 34 or to present companies with more specific guidelines on how to implement the statement. This was in an effort to provide greater consistency and comparability between various financial statements. This paper will attempt to establish guidelines which will add clarity to the interpretation of SFAS No. 34 and provide for a more consistent application that is of better utility to financial statement users.