AM section question # 39
In 2009:
Total interest costs incurred (3,540)
Less amount capitalized (30)
Interest Expense (3,510)
the answer states: “the capitalization of interest costs increased EBIT by $30mil”
I’m a little confused because IF we don’t capitalize interests, then they will be recorded as interest expense … Thus we’ll have 3,540 as interest expense … But EBIT is before interest anyway so it will not be affected regardless
Am I missing something?
Thanks guys
Can you post the whole problem?
In 2009 which of the following accounting policies most likely had the largest effect on the increase in EBIT ?
a) interest costs
b)deferred revenue
c) software development costs
Given in the problem: In 2009 …
capitalized development cost $6.5 and accumulated depreciation $2.0 (net capitalized software $4.5)
interest costs incurred $3540 and capitalized interest costs $30 (interest expense $3510)
I’m not going to mention deferred revenue because deferred revenue hurts EBIT rather than increasing it. The answer is A by the way which makes very little sense to me since “expensed rather than capitalized” interest cost should be categorized as interest expense and this doesn’t have anything to do with EBIT