How do we compute depreciation expense, if the buildings value has a capitalized loan interest on it?
You’re only allowed to capitalise loan interest if the loan was obtained to CONSTRUCT a building. In that case, you add up all the cost of the construction, including the loan interest, and when the building is ready for occupation, you’re to stop further interest capitalisation. You depreciate the cost of the bldg as per normal. If you took out a loan to buy an already completed building, you’re not allowed to capitalise the loan interest, which is charged to the income statement as an expense.
