Back to Questions
SSC Financial and Cost Accounting P-1 QUESTION #9635
Question 1
Interest on a loan taken specifically to construct a building is normally treated as:
  • Revenue expenditure, charged to P&L in the year incurred
  • Capital expenditure, added to the cost of the building until it is completed and ready for use✔️
  • Financial expenditure, shown separately in P&L under financial charges throughout the loan period
  • Deferred expenditure, spread over the life of the building
Correct Answer Explanation
Interest on a loan taken to purchase or construct an asset is an exception to the general rule. Such interest is capitalized (added to the cost of the asset) up to the date the asset is brought into use. This is consistent with the principle that all costs incurred to bring an asset to its intended use are part of its cost. After the asset is ready, subsequent interest is treated as a revenue expense.