Construction labor and other direct costs of construction

Expense

Capitalize

Capitalize

Labor and related direct costs should be expensed until the project is probable. Costs that are direct and clearly incremental should be capitalized once the project is probable and during the construction phase.

Consulting fees (e.g., engineering, architectural studies)

Expense

It depends

It depends

Fees should be expensed until the project is probable. Once the project is probable, directly identifiable costs may be capitalized. The amount capitalized should be limited to those amounts directly related to the site and project selected (e.g., costs related to evaluation of potential projects or locations should be expensed).

Contribution to local community organization or other similar gift made as a precondition to obtaining necessary permits or licenses

Expense

It depends

It depends

Contributions should be expensed in the period made unless they are exchange transactions for the purchase of a good or service. Contributions made in exchange for a required license or permit may qualify for capitalization. See UP 12.2.1.3 and PPE 1.2.1.3

Demolition costs

It depends

It depends

It depends

Demolition costs should be expensed as incurred, except in certain situations when incurred in conjunction with an acquisition or lease of real estate. See PPE 1.2.1.3.

Due diligence fees

Expense

It depends

It depends

See discussion under “Consulting fees” above.

Engineering, procurement, and construction contract costs

Expense

Capitalize

Capitalize

Direct costs of construction should be capitalized. Indirect costs and overhead of the EPC contractor may also be capitalized as part of the direct costs of construction because such amounts are considered an incremental direct cost.

Feasibility studies

Expense

It depends

It depends

See discussion under “Consulting fees” above.

Ground lease expense

Expense

Expense

Generally expense

Capitalization of ground lease expense by a lessee for property constructed for its own use is prohibited. However, ground lease expense should be capitalized during the construction of property for sale or rental. See UP 12.2.2 and PPE 1.7.5.

Interest costs

Expense

Capitalize

Capitalize

Interest costs should be capitalized in accordance with the criteria in ASC 835-20. See UP 12.2.1.3 and PPE 1.3.

Land option

Capitalize

Capitalize

Capitalize

The proposed PP&E SOP and ASC 970-340-25-3 specifically permit capitalization of land options, even during the preliminary stage when the project is not yet probable. Amounts paid should subsequently be accounted for at the lower of cost or fair value, less cost to sell. See UP 12.2.1.2 and PPE 1.2.1.2.

Legal fees

Expense

It depends

It depends

See discussion under “Consulting fees” above.

Materials and supplies

Capitalize

Capitalize

Capitalize

Materials and supplies should generally be expensed during the preliminary stage unless they have an alternative use (e.g., inventory). The accounting for materials and supplies should be accounted for in accordance with the reporting entity’s policy for similar items. Such amounts for power and utility companies are usually capitalized and should be carried at the lower of cost and net realizable value. See UP 12.2.4 and UP 11.2.

Operating contract negotiation (e.g., fuel supply agreements, power sales agreements, operating and maintenance agreements)

Expense

Expense

Expense

Contract negotiation costs should be expensed. Although the project may not be viable without operating contracts (because, for example, a signed power sales agreement is a prerequisite for financing), these contracts are not directly related to or theoretically necessary for construction of the asset itself.

Organizational costs (e.g., corporate bylaws, other agreements)

Expense

Expense

Expense

Organizational costs should be expensed in accordance with ASC 720-15.

Overhead, including rent, depreciation, and support functions (executive management, accounting, purchasing, corporate legal, human resources, and information systems)

Expense

Expense

Generally expense

General and administrative and overhead costs should be charged to expense as incurred, with a limited exception for property constructed for sale or rental. See UP 12.2.2 and PPE 1.7.3.

Outsourced administrative functions (e.g., accounting, purchases, and payables)

Expense

Expense

Generally expense

General and administrative and overhead costs should be charged to expense as incurred, even if the costs are incurred by a third party on behalf of the reporting entity. These costs may be eligible for capitalization if the property is constructed for sale or rental. See UP 12.2.2 and PPE 1.7.3.

Project financing—external fees

Capitalize

Capitalize

Capitalize

Specific incremental costs directly attributable to a project financing should be capitalized (e.g., debt issuance costs). Any amortization recorded during construction would be included in capitalized interest calculations.

Project financing—internal costs and salaries

Expense

Expense

Expense

General and administrative costs and overhead costs should be charged to expense as incurred.

Property taxes

Expense

Expense

Generally expense

Property taxes are a cost of owning the property and are not a direct incremental cost of construction; thus, such amounts should be expensed as incurred. However, similar to ground lease expense, such amounts may be capitalized if the property is being constructed for sale or rental. See UP 12.2.2 and PPE 1.7.2.

Recruiting (costs to identify and hire operating and administrative personnel on site)

Expense

Expense

Expense

Recruiting costs should be expensed in accordance with ASC 720-15.

Salaries—developers, legal counsel, and other personnel working directly on the project

Expense

It depends

It depends

All payroll and payroll-related costs should be expensed until the project is probable. Once the project is probable, directly identifiable payroll and payroll expense should be capitalized. The amount capitalized should be limited to those amounts directly related to the site and project selected (e.g., costs related to evaluation of potential projects or locations should be expensed). In addition, occupancy and similar costs associated with personnel working on the project should be expensed.

Salaries—support functions

Expense

Expense

Generally expense

General and administrative costs should be expensed as incurred, with a limited exception related to property constructed for sale or rental. See discussion under “Overhead” costs.

Site permit and license fees

Expense

Capitalize

Capitalize

Site permit and related fees are a direct cost of construction and should be capitalized once construction is probable.

Site security costs

Expense

Capitalize

Capitalize

Site security costs are a direct cost of construction and should be capitalized once construction is probable. Amounts capitalized should be limited to incremental security costs.

Internal use software development costs

Expense

Capitalize as permitted

Capitalize as permitted

Software development costs should be capitalized in accordance with the requirements of ASC 350-40. See SW 3.

Test power

Not applicable

Not applicable

Capitalize

Test power revenue and related incremental expense (e.g., fuel) should be capitalized as part of the cost of the asset under construction. See UP 12.2.1.3.

Training costs

Expense

Expense

Expense

Training costs should be expensed in accordance with ASC 720-15.

Travel expenses—internal and third party

Expense

It depends

It depends

See discussion under “Consulting fees.”