Intercompany loan_ Capitalized Interest
Capitalized interest specifically in the context of an intercompany loan. 1. Intercompany Loan Basics: An intercompany loan is simply a loan made between two related companies within the same corporate group (e.g., a parent company lending to a subsidiary, or one subsidiary lending to another). Like any loan, it typically carries an interest rate. The borrowing company incurs interest expense, and the lending company earns interest income. Transfer pricing rules generally require this interest rate to be set at "arm's length," meaning similar to what unrelated parties would agree to. 2. Capitalized Interest (General Accounting Principle): Normally, interest expense incurred by a company is recorded on its income statement in the period it's incurred, reducing net income. However, accounting standards (like US GAAP ASC 835-20 or IFRS IAS 23) require or permit companies to capitalize interest costs under specific circumstances. Capitalization means adding the...