capitalization vs expensing

CFA Level I
#1

if capitlized interest is adjusted for analysis purposes, then after adjustment, what happens to these two variables EBIT, Interest Expense up, up down, down up, down down, up same, same same, up up, same down, same same, down

#2

same up

#3

thats correct, after the adjustmen EBT will be higher due to a lower interest expense.

#4

beingthatguy Wrote: ------------------------------------------------------- > thats correct, after the adjustmen EBT will be > higher due to a lower interest expense. strange is right. but your explanation is incorrect.

#5

Earning Before Interest and taxes…so no effect on this capitalized expenses will move to income statement and hence “interest expenses” up

#6

same up. EBIT is before int exp, so no net difference what previously was on balance sheet migrates to the P & L and BOOM! you now have lower EBT b/c you are EXPENSING something thanks - let’s get some more FSA going. FSA = 25% of the exam folks!!!

#7

daj224 Wrote: ------------------------------------------------------- > same up. > > EBIT is before int exp, so no net difference > > what previously was on balance sheet migrates to > the P & L and BOOM! > > you now have lower EBT b/c you are EXPENSING > something > > thanks - let’s get some more FSA going. > > FSA = 25% of the exam folks!!! FSA is 20% of the exam, but i believe its teh most challenging 20%

#8

ok now im confused I thought capitalized interest will decrease interest expense in the current year? But then for analysis purposes it should be added back into assets? haha nevermind, just reread the question.

#9

What about the depreciation from the capitalized interest on the P&L? Wouldn’t you have to add this back therefore raising EBIT??