When does the capitalization period for interest begin?

The capitalization period for interest begins when expenditures for the asset have been made and activities that are necessary for its intended use are underway. This concept aligns with the matching principle in accounting, which stipulates that costs should be recorded in the same period as the revenues they help to generate.

For a long-term asset under construction, interest expense can be capitalized only during the period in which the asset is being constructed and relevant expenditures are incurred. This means that the construction activities must have started, and actual outlays must be made towards the asset's development. Once these criteria are met, the interest on the debt incurred to finance that construction can be capitalized as part of the cost of the asset, rather than being expensed in the period incurred.

The other scenarios, such as simply having purchased the asset or securing financing, do not necessarily trigger the start of the capitalization period. They might indicate that the project is moving forward, but the crucial factor is that expenditures related to the asset and the necessary activities for its intended use have been initiated.