Certified Materials and Resource Professional Practice 2025 – All-in-One Guide to Exam Excellence!

The situation in which a business typically does not capitalize interest on an asset occurs when the assets are not created for its own use. Under accounting standards, interest capitalization is applicable only to certain types of assets, particularly those that are intended for use in the business operations.

If an asset is being acquired for resale, it is considered inventory rather than a long-term asset that will be used in the business. In such cases, the interest cost related to financing the asset is generally treated as a period expense, rather than being added to the cost of the asset. This is because the asset is not intended to be held for long-term productive use but rather is held for sale in the ordinary course of business operations.

On the other hand, in situations where the asset is financed through a bank loan or purchased overseas, both scenarios would typically allow for interest to be capitalized, as these assets are often intended for long-term use within the business. Thus, the correct choice reflects the fundamental accounting principle that distinguishes between assets created for productive use and those held for sale.