Which one of the following statements is true?

A) If a plant asset is self-constructed for less than it would cost to purchase, a profit should be recorded upon the completion of the construction.
B) When property, plant, or equipment is acquired through donation, a gain is credited.
C) Development stage enterprises need not report losses before sales are made.
D) Interest cannot be capitalized when an asset is substantially complete and ready for its intended use.

Question

Claire Reyes · Accepted Answer

Final Answer : D, Explanation :  According to generally accepted accounting principles (GAAP), interest can be capitalized when it is incurred during the construction of a qualifying asset. However, once the asset is substantially complete and ready for its intended use, no further interest can be capitalized. Therefore, option D is the only true statement. Option A is false because constructing an asset for less than its purchase price does not necessarily result in a profit. Option B is false because a donation of property, plant, or equipment is typically recorded at its fair value, which may result in either a gain or a loss. Option C is false because development stage enterprises must report all losses, regardless of whether sales have been made.

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