Interest is capitalized when incurred in connection with the construction of plant assets because, during construction, the asset is not generating revenue
<h3>What is Interest?</h3>
This refers to the amount or rate that is added to a principal amount and this is usually done when a loan is collected.
Hence, we can see that when plant assets are being constructed, interest is capitalized and the main reason why this happens is that the asset is not generating revenue.
Furthermore, actual interest is the only thing that should be capitalized and this is because, during construction, the asset is not generating revenue and therefore companies should defer (capitalize) interest cost.
Thus, Interest is capitalized when incurred in connection with the construction of plant assets because, during construction, the asset is not generating revenue.
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