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The following is a brief, overview of interest capitalized during construction. According <br />to financial accounting standards, this is typically called capitalized interest. The <br />information is not intended to be submitted into evidence in any court action either <br />currently or prospectively. <br /> <br />The number of known companies who are capitalizing interest into their assets for <br />financial reporting purposes is three (3) including Philip Morris. The other two (2) <br />are reporting costs of assets to the County including the booked interest component. <br /> <br />· The issue is currently being pursued with an additional taxpayer. <br /> <br />· There may be other taxpayers that have reported this component of cost in their <br /> annual tax listings to the County. <br /> <br />The additional value of assets attributable to an interest component is estimated in the <br />$50 thousand range (For the taxpayers known to be reporting this component). Philip <br />Morris' value attributable to the interest component is estimated to range from $I 5 <br />million to $30 million. <br /> <br />Capitalized interest is part of the historical cost of acquiring certain assets. To qualify <br />assets must require a period of time to get them ready for their intended use. The <br />capitalization period begins when three conditions are present: <br /> <br />1. Expenditures for the assets have been <br />2. Activities that are necessary to get the asset ready for its intended use are in <br /> progress. <br />3. Interest cost is being incurred. <br /> <br />· The issue of capitalized interest arose in early 1990. <br /> <br />The interest cost is a component of installed costs of qualifying assets and is trended <br />and depreciated according to the estimated useful life of the particular asset. <br /> <br />The North Carolina Department of Revenue recommends construction period interest, <br />including capitalized interest, should be included as an element of cost along with <br />freight, direct materials and labor, overhead, etc. in order to be trended and <br />depreciated for determination of fair market value. <br /> <br />Mecklenburg, Forsyth and Guilford, as a practice, when aware of interest <br />capitalization, include it as a component of cost in order to ultimately determine <br />value. Wake County excludes it. The Department of Revenue is currently researching <br />the identity of other counties who include capitalized interest in its costs of assets in <br />order to determine fair market value. <br /> <br /> <br />