- Joined
- Nov 30, 2017
- Messages
- 1
- Reaction score
- 0
- Country
Hey all,
A lot of the accounting guidance speaks to situations involving ground up construction, but what about when you acquire a building with the intent to make modifications for it? Let's say hypothetically you buy a building for $50M for future development of timeshare. A few months after the acquisition, activities are taken to prepare it for a new intended use. From a capitalization of interest standpoint, which uses "average accumulated expenditures", is there any accounting guidance to address the $50M acquisition cost? Let's say the first month's expenditures related to renovation/new construction is $4M. Should capitalization of interest be on the $2M ((0 + 4) / 2) or should it be on $52M ((50 + 54 / 2)? What other semantics could affect it? If you simply purchased it for "future development" but were unsure as to the intent, maybe hold it for sale, or lease it out, or operate it as a hotel, would that matter? Perhaps if you know your "intent" prior to acquisition, the acquisition itself is an activity necessary to bring the asset to its intended use?
Thoughts?
Thanks, Chris
A lot of the accounting guidance speaks to situations involving ground up construction, but what about when you acquire a building with the intent to make modifications for it? Let's say hypothetically you buy a building for $50M for future development of timeshare. A few months after the acquisition, activities are taken to prepare it for a new intended use. From a capitalization of interest standpoint, which uses "average accumulated expenditures", is there any accounting guidance to address the $50M acquisition cost? Let's say the first month's expenditures related to renovation/new construction is $4M. Should capitalization of interest be on the $2M ((0 + 4) / 2) or should it be on $52M ((50 + 54 / 2)? What other semantics could affect it? If you simply purchased it for "future development" but were unsure as to the intent, maybe hold it for sale, or lease it out, or operate it as a hotel, would that matter? Perhaps if you know your "intent" prior to acquisition, the acquisition itself is an activity necessary to bring the asset to its intended use?
Thoughts?
Thanks, Chris