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Interest Capitalization

This template can be used to calculate capitalized interest on constructed assets in accordance with FASB ASC 835-20,
Interest—Capitalization of Interest.

Entering Data

All of the data needed to calculate capitalized interest is entered on the Input worksheet.
The first section of the worksheet requests information needed to prepare report headers and calculations: the entity’s name, name of the firm or person preparing the schedule, beginning of period date, and end of period date. The beginning and end of period dates must be entered for the template to generate the capitalized interest calculations.
The next section of the Input worksheet requests the following:

Averaging period

Indicate the period that should be used to calculate average asset and debt balances by clicking the arrow in the drop-down list box and selecting either monthly, quarterly, or annually from the list. The selected period should not be longer than the length of time between the beginning of period date and the end of period date.

Calculation method

Select either the Direct debt method or Total debt method option button to indicate the method that should be used to compute capitalized interest. The direct debt method calculates capitalized interest based on the debt directly related to the asset under construction (that is, debt used specifically to finance acquisition, development, or construction on the project). The direct debt method considers only other debt (that is, debt not related to the asset under construction) if average qualifying assets exceed the average direct debt balance for the period. The total debt method calculates capitalized interest based on the entity's total debt. The total debt method does not distinguish between direct debt and other debt. Either the direct debt or total debt method can be used to calculate capitalized interest.

Total interest expense incurred during the period

The total expense amount should be entered regardless of the interest capitalization method used.
Interest expense should include amortization of any premiums, discounts, or deferred financing costs. If the project has been financed at least partially through tax-exempt debt, interest expense should be net of any investment income from unused proceeds.

Qualifying asset and debt balances

The Input worksheet automatically enters the applicable month-end, quarter-end, or year-end dates in the table based on the beginning and end of period dates previously entered and the calculation period previously selected.
If the direct debt method is used, amounts must be entered in (a) the Qualifying Assets - Balance column and (b) the Debt Balances - Direct Debt column. If average qualifying assets for the period exceed average direct debt for the period, you will be prompted to also enter amounts in the Debt Balances - Other Debt column. In any event, no entries are needed in the Debt Balances - Total Debt column.
If the total debt method is used, enter amounts in the Qualifying Assets - Balance column and the Debt Balances - Total Debt column for every date specified in the table. Do not enter amounts in the Debt Balances - Direct Debt or Debt Balances - Other Debt columns.
Under either the direct debt or the total debt method, the amount entered in the Qualifying Assets - Balance column for each month-end (or quarter-end or year-end, if applicable) should be the net balance of capitalized costs for all components of the project undergoing development or construction during the period. The balances should be net of property sold but not net of impairment writedowns. The balances also should include interest capitalized in prior periods. Be sure to enter balances rather than activity for each date specified. Similarly, the amounts entered in the applicable Debt Balances columns should be debt balances rather than activity for each date specified. Note that the Input worksheet automatically enters the last date of the prior period as the first date in the table. Be sure to enter the prior period balances, if any, for qualifying assets and debt.
The remainder of the Input worksheet needs to be completed only if the direct debt method is used. In that case, indicate whether the interest rate on direct debt fluctuated during the period by selecting either the Yes or No option button. If your answer is yes, you will be prompted to enter the amount of interest expense on direct debt during the period, but not the effective interest rate on direct debt. If your answer is no, you will be prompted to enter the effective interest rate on direct debt, but not the amount of interest expense on direct debt during the period.
Adjust interest expense (or the effective interest rate, if applicable) for (a) amortization of any premiums, discounts, or deferred financing costs, and (b) investment income from the unused proceeds of any tax-exempt debt used to finance the project.
If other debt amounts were required to be entered in the table, you will also be asked to indicate whether the interest rate on other debt fluctuated during the period. If your answer is yes, you will be prompted to enter the amount of interest expense on other debt during the period, but not the effective interest rate on other debt. If your answer is no, you will be prompted to enter the effective interest rate on other debt, but not the amount of interest expense on other debt during the period. In either case, be sure to adjust interest expense (or the effective interest rate, if applicable) for amortization of any premiums, discounts, or deferred financing costs.