Which types of assets qualify for interest capitalization?

Interest capitalization refers to the accounting practice of including interest costs incurred during the construction or acquisition of certain qualifying assets in the asset's carrying value. This practice recognizes that financing costs are an integral part of bringing an asset to its intended use.

The correct answer states that only assets created by the business for its own use qualify for interest capitalization. This is because the capitalized interest represents costs directly associated with the construction or production of these assets. When a business constructs an asset for its own use, it incurs expenses not only for materials and labor but also for financing those expenditures. Capitalizing interest ensures that the asset's value accurately reflects all related costs when it is placed into service.

In contrast, the other options do not meet the criteria for interest capitalization. For example, all assets owned by a business may not involve interest costs directly tied to their creation or acquisition, especially if they were bought off-the-shelf rather than built. Assets acquired through donations often do not involve any cash outlay or financing costs, thus making interest capitalization inapplicable. Similarly, assets from third-party leases are typically not capitalized since they remain the property of the lessor, and the lessee only incurs lease payments rather than construction costs or financing related to the asset