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  • Question

    Can interest expense incurred from borrowings to acquire or construct assets by capitalized and subsequently expensed via depreciation?


    Answer

    Per FAR 31.205-20, "Interest on borrowings (however represented) [emphasis added]...is unallowable." Use of the "however represented" terminology and the fact that no exceptions are referenced therein both support the contention of the auditors who say that depreciation expense related to capitalized interest is unallowable.

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