Does capitalizing interst affect the EBIT in the year intrest was capitalized?
I understand that it would affect EBIT in the years after capilization, due to a higher depreciation expense… but what about the same year the cost was capitalized?
In terms of interest expense, it will not affect.
But once you capitalize your interest, you will book annual depreciation expense even in your first year, that will lower your EBIT comparing to the other case.
Except for capitalization of interest on the construction of a new asset. It should be expensed. Capitalizing will increase EBIT.
2011 Morning Mock #39
what about if your calculating interest coverage ratios? should include the capitalised interest in the interest expense right?
The entire amount of interest, including capitalized, should be used in calc’ing interest coverage ratios
* and the depreciation related to the capitalized interest should be added back to EBIT to adjust