# accounting people- capitalized interest

Would you subtract the amount of capitalized interest from investing cash outflows and then subtract the same amount from operating cash inflows?

I think you would add back to the investing cash flows and subtract from operating cash flows if you are getting rid of the capitalization of interest from the asset value and adding it to interest expense

Don’t listen to this pizzle. I think you should deduct it from cash flow investing and add to operating cash flows if you are getting rid of the capitalization of interest frm the asset value and adding it to interest expense.

As far as I remember, adjustments to CF statements are: For CFO: [IE as appears on the income statement + Capitalized interest + interest on operating leases] *(1-tax rate) = NATCIE (net after tax cost of interest expense) CFO as reported +NATCIE - Capitalized interest= Adjusted CFO For CFI: CFI as reported + Capitalized interest = Adjusted CFI For CFF: CFF as reported - NATCIE = Adjusted CFF

I agree with map1 who is smart. ananda_, eat your heart out.

Eat me

guys, i looked at the CFA level 1 text and they did what i said, which is to subtract capitalized interest from investing cash outflows and subtract it from operating cash inflows as well. basically, they’re just trying to transfer it from investing to operating. that is what level 1 CFA says, anyway. did they change it in subsequent levels?

This is correct penged. Just the way its worded is not very good. More understandable for me if you say to add it as an operation cash outflow. But different strokes for different folks, it works either way!

What are you looking for: an adjustment of the entire cash flow statement, to include all off BS positions and reflect the true nature of a cash flow? (this is L2 material, the above formula applies) or, a calculus of the CF positions (operating, financing, investment)? (L1 applies, direct or indirect methods). In the first case, the total CF (O+I+F) is not changing, but the constituent amounts flow from one type of CF to another, depending on the real flow of cash. In the second case, you are probably looking at the IS and the direct method of calculating CFO. Paying interest is indeed an operating outflow, just as interest received is an inflow, and taxes paid an outflow.

Depends if we are talking IFRS or US GAAP, right?

Correct, interest paid could be operating or financing under IFRS.

Oh, the memories. By the way, map1, how have you been?

Terrified of a fail, fighting myself not to check the CFAI registration page first thing each day:)