Capitalization of Interest Cost of Construction (BF-19, Rev. 1)C ITY O F DELRA Y BEA C H
A DM IN ISTRA TIVE PO LIC IES AND PRO C EDURES
DEPARTMENT:
SUBJECT:
REVISION:
APPROVED BY:
PURPOSE
Finance
Capitalization of Interest
Cost of Construction in
Progress
POLICY NUMBER:BF-19
SUPERSEDES:BF-19,Rev.0
EFFECTIVE DATE:[o'1/4/
Terrence R.Moore,ICMA-CM,City Manager
The purpose of this directive is to establish a procedure for the capitalization of interest costs of construction
in progress in Enterprise Funds at year end.
POLICY
A.Capitalization of interest costs is defined by the Financial Accounting Standards Board as a partial
historic cast of acquiring particular assets that require a certain period of time to get them ready for
their intended use.
The objective of capitalizing interest is to obtain a measure of acquisition casts that more closely
reflects the enterprise's total investment in the asset.
Assets that qualify far interest capitalization are as follows:
A.Assets that are constructed for the City of Delray Beach's own use by others,including
contractors for which deposits or progress payments have been made.
B.Assets intended for sale or lease that are undergoing improvements necessary to get them
ready for their intended use.
C.Investments accounted for by the equity method while the City of Delray Beach has
improvements in progress necessary to commence its operations and these improvements
include the use of funds to acquire the qualifying assets for its operation.
Assets that do not qualify for interest capitalization are as follows:
A.Assets that are in use or ready for their intended use.
B.Assets that are not being used and are not undergoing the improvements necessary to get
them ready for use.
C.Assets which are not included on the consolidated balance sheet.
D.Inventories that are routinely manufactured or produced in large quantities on a
repetitive basis.
Capitalization of Interest Cost of Construction in Progress
BF-19
Page 2 of 4
How to calculate the amount of interest cost to be capitalized:
A Prepare tine construction in progress year end schedule.This schedule will include
the prior and present year end balances in construction in progress (see Schedule A).
B.Identify the fund(s)with the qualifying asset(s).These funds are financed by various
revenue bond issues in Enterprise Funds only.
C.Prepare the year end work paper schedule (see Schedule B).Add the total balance
of the prior year to the present year balance and use the weighted average to
determine the average qualifying asset total.
D.Determine the interest cost by multiplying the average qualifying asset total by the
capitalization rate or the interest rate.The capitalization rate is the current rate being
used on the outstanding borrowed funds.
E.Subtract the current year total interest earned from the interest cost.The City of Delray
Beach qualifying assets are financed by proceeds of restricted tax-exempt funds.The
interest costs to be capitalized shall be all interest cost of those borrowed funds less
any interest earned from the date of issuance until the assets are ready for use.
F.Net the interest cost and the current year interest earned.This is the "Total Interest
Available to Capitalize".
G.Prepare the journal entry to increase construction in progress and increase interest
expense during construction.
Capitalization of Interest Cost of Construction in Progress
BF-19
Page 3 of 4
SCHEDULE A
STEP 182
FILE:CIPENTO3 CITY OF DELRAY BEACH
CONSTRUCTION IN PROGRESS
ENTERPRISE FUND 09/30/03
ACCOUNT NUMBER DESCRIPTION
BALANCE
09/30/02
CIP
ADDITIONS
CAPITAL TRANSFERRED BALANCE
ADDITIONS TO CAPITAL 09/30/03
2000 ROADWAY BOND
448-0000-169-00.00 STORMWATER UTIL FUND
TOTAL CIP FUND
$8,546.03
$8,546.03
$650,193.82 $24,626.33
$650,193.62 $24,626.33
($28,432.36)$664,933.62
($28,432.36)$664,933.62
2000 ROADWAY BOND -STORMWATER FUND
448-5470-538-61.10 LAND $0.00 $0.00 $111,901.31 ($111,901.31)$0.00
448-5470-538-65.40 RESURFACING $0.00 $0.00 $0.00 $0.00 $0.00
448-5470-538-866.41 SWALE RECONSTRUCTION $0.00 $0.00 $0.00 $0.00 $0.00
448-5470-538-66.42 BARRIER ISLANDS $0.00 $0.00 $0.00 $0.00 $0.00
448-5470-538-66.43 LAKE IDA ROAD N $0.00 $449,557.43 $0.00 $0.00 $449,657.43
448-5470-638-66.45 SE-SW AREA ATL TO 10TH ST $0.00 $0.00 $0.00 $0.00 $0.00
448-5470-538-65.48 SO RIDGE/SUNSETIALBATRO $0.00 $0.00 $0.00 $0.00 $0.00
448-5470-538-66.47 NW A8TH AV-MARTY FLADELL $0.00 $0.00 $24,200.00 ($24,200.00)$0.00
448-5470-538-65.48 BREEZY RIDGE ESTATES $940.00 $0.00 $0.00 $0.00 $940.00
448-5470-538-66.58 SW AREA 2 $3,800.00 $200,636.19 $0.00 $0.00 $204,436.19
448-6470-538-65.59 SW AREA 3 $3,806.03 $0.00 $426.33 ($4,232.36)$0.00
TOTAL CIP FUND $8,546.03 $650,193.62 $24,826.33 ($28,432.36)$664,933.62
Capitalization of Interest Cost of Construction in Progress
BF-19
Page 4 of 4
FILE:ENTBONDCAPINT03 CITY OF DELRAY BEACH
SCHEDULE B
2000 ROADWAY BOND
CAPITALIZATION OF INTEREST COST
09/30/03
CHECK FIGURE
INTEREST COST:
2000 ROADWAY BOND
Weighted Average
$1,511,319.73 /4
AVERAGE QUALIFYING ASSET
MULTIPLE BY THE INTEREST RATE
TOTAL INTEREST COST
CURRENT YR INTEREST EARNED
ACCT#448-0000-361-10.00
BALANCE
9/30/00
$661,084.42
$377,814.93
$377,814.93
6.245%
$19,816.39
$19,118.02
$698.37
BALANCE
9/30/01
$186,696.66
BALANCE
9/30/02
$8,546.03
BALANCE
9/30/03
$654,933.62
AVERAGE QUALIFYING ASSET
DR CIP 448-0000-169-00.00
CR INTEREST EXP 448-7111-582-72.16