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This posting addresses how to account for MPS construction.

Your firm audits Metropolitan Power Supply (MPS). The issue under consideration is the treatment in the company's financial statements of $700 million in capitalized construction costs relating to Eagle Mountain, a partially completed nuclear power plant.

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This is how I would handle this problem:

(A) The issues regarding arguments for and against the auditors insisting that MPS begin expensing some portion of the construction costs rather than continuing to accumulate an ever-increasing asset:

Why the auditors would do it: Eagle Mountain is going to end up costing MPS more than they will ever recover. There is no way that the company can recover 100% of their expenses with Eagle Mountain. MPS ...

Solution Summary

This solution explains how to handle each of the questions in the Metropolitan Power Supply case.