Financial Reporting and Analysis - Piezo (CFA Practice Test)

Has anybody attempted the CFA Official Q-bank (posted on their website)?

FRA (4th problem)- Question 5 of 6:Financial Reporting and Analysis - Piezo

Ignoring the effects of income taxes, the expensing of previously capitalized interest would result in Cash flow from operations to be:

  • Unchanged

  • Higher

  • Lower

I went with Lower (as per CFA Curriculum explanation on Page-60), but the answer is Unchanged)

Pls comment?

If it were capitalized previously, it was paid previously. When it’s expensed later, there is no cash flow.

Makes sense…

So the problem didn’t ask about what would have happened to Cash flow from operations, if the interest expense were to be capitalised instead of being expensed in earlier years.

The question was what happens to the operating cash flow, if the capitalized portion of the interest expense is now expensed going forward…right?

Thanks much