Considerations for Managing Capitalized Interest
Capitalized interest is an estimate of the interest cost incurred when you invest in long-term capital projects.
Subject to accounting rules and regulatory guidelines, you can capitalize interest as part of the total cost of acquiring and constructing assets that require an extended period to be ready for use. To support this requirement, Oracle Fusion Projects can calculate and record capitalized interest for capital projects. You can recognize multiple types of capital interest on your projects. For example, you can calculate capitalized interest separately for interest types such as debt and equity.
Oracle Fusion Projects calculates capitalized interest on open construction-in-process (CIP) amounts. You can spread the cost for one expenditure item across multiple assets. If you have previously capitalized any of the assets to which the cost is allocated, then the total item cost is excluded from the interest calculation.
The process for generating and recording capitalized interest transactions includes the following tasks:
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Defining rates names and rate schedules
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Setting up capital projects for calculating capitalized interest
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Generating, reviewing, and releasing capitalized interest expenditure batches
Defining Rate Names and Rate Schedules
Define capitalized interest rate names to represent each interest type that you want to capitalize. Create capitalized interest rate schedules to define rates of interest calculation for each organization.
Setting Up Capital Projects for Calculating Capitalized Interest
To correctly calculate capitalized interest, ensure that correct capitalization options are defined at the project type, project template, and project levels. At the project level, verify the following:
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The project allows capitalized interest calculation
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The appropriate capital interest rate schedule and capitalized interest stop date are specified
Generating, Reviewing, and Releasing Capitalized Interest Expenditure Batches
You can generate capitalized interest transactions periodically to calculate capitalized interest and generate transactions for eligible projects and tasks. You can review the capitalized interest batches, and delete or reverse them if required.