The quantitative impairment test is the comparison of the fair value of a reporting unit with its carrying amount, including goodwill. In accordance with the authoritative guidance over fair value measurements, the Company defines the fair value of a reporting unit as the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. The Company primarily uses the income approach methodology of valuation, which uses the discounted cash flow method, to estimate the fair values of the Company's reporting units. The Company does not believe that a cost approach is relevant to measuring the fair values of its reporting units.
Significant management judgment is required when estimating the fair value of the Company's reporting units, including the forecasting of future operating results, the discount rates and expected future growth rates that it uses in the discounted cash flow method of valuation, and in the selection of comparable businesses that are used in the market approach. If the estimated fair value of the reporting unit exceeds the carrying value assigned to that unit, goodwill is not impaired. If the carrying value assigned to a reporting unit exceeds its estimated fair value, the Company records an impairment charge based on the excess of the reporting unit’s carrying amount over its fair value. The impairment charge is limited to the amount of goodwill allocated to the reporting unit.
The Company performed a qualitative impairment test for the goodwill balance in Saeta Yield S.A.U. (“Saeta”) of $120.6 million as of December 1, 2018 and concluded that the carrying amount of the reporting unit does not exceed its fair value. No goodwill impairment charges were recorded for the years ended December 31, 2018 and 2017. The Company recorded a goodwill impairment charge of $55.9 million for the year ended December 31, 2016 as reflected in the consolidated statements of operations (see Note 7. Goodwill for further discussion).
Interest incurred on funds borrowed to finance construction of renewable energy facilities is capitalized until the system is ready for its intended use. The amount of interest capitalized during the years ended December 31, 2018 and 2016 was $0.2 million and $1.6 million, respectively. There was no interest capitalized during the year ended December 31, 2017.
Financing Lease Obligations
Certain of the Company's assets were financed with sale-leaseback arrangements. Proceeds received from a sale-leaseback are treated using the deposit method when the sale of the renewable energy facility is not recognizable. A sale is not recognized when the leaseback arrangements include a prohibited form of continuing involvement, such as an option or obligation to repurchase the assets under the Company's master lease agreements. Under these arrangements, the Company does not recognize any profit until the sale is recognizable, which the Company expects will be at the end of the arrangement when the contract is canceled and the initial deposits received are forfeited by the financing party.
The Company is required to make rental payments over the course of the leaseback arrangements. These payments are allocated between principal and interest payments using an effective yield method.
Deferred Financing Costs
Financing costs incurred in connection with obtaining construction and term financing are deferred and amortized over the maturities of the respective financing arrangements using the effective interest method and are presented as a direct deduction from the carrying amount of the related debt (see Note 10. Long-term Debt), with the exception of the costs related to the Company's revolving credit facilities, which are presented as a non-current asset on in the consolidated balance sheets within other assets. As of December 31, 2018 and 2017, the Company had $6.7 million and $9.4 million, respectively, of unamortized deferred financing costs related to its revolving credit facilities.
Inventory consists of spare parts and is recorded at the lower of weighted average cost of purchase or net realizable value within prepaid expenses and other current assets in the consolidated balance sheets. Inventory as of December 31, 2018 and 2017, was $7.6 million and $5.7 million, respectively. Spare parts are expensed to cost of operations in the consolidated statements of operations or capitalized to renewable energy facilities, as appropriate, when installed or used.