Hi guys, In Q39 solution, they say that interest costs has increased EBIT by 30 million because it was capitalized not expended - how is so? Isn’t interest expense deducted AFTER EBIT? if there is any effect then interest depreciation should decrease EBIT when capitalized … if they just expense it, it won’t increase EBIT by 30 million Am I right here?
Omar: this question is wrong for 2 reasons. 1. they mis-marked the amounts and in the footnotes noted interest cost in (millions) when on the original income statement it was in (thousands). so 30 million should really be 30,000, not 30 M. 2. interest cost don’t flow through EBIT. http://www.analystforum.com/phorums/read.php?12,1263715,1266053#msg-1266053 The correct answer is C.
that was my choice too - thanks dear
Capitalized Interest doesn’t hit the interest expense account but is rather a depreciation expense. Not sure if it relates to the answer, but just a heads up.
mikefromva Wrote: ------------------------------------------------------- > Capitalized Interest doesn’t hit the interest > expense account but is rather a depreciation > expense. Not sure if it relates to the answer, but > just a heads up. That’s exactly what I said in my original post “if there is any effect then interest depreciation should decrease EBIT when capitalized … if they just expense it, it won’t increase EBIT by 30 million” - it should DECREASE ebit because of dep … but if WE expense it instead, it shouldn’t affect EBIT since I comes BELOW ebit
No need to bicker
so if they said based on exhibits (x and y) and they were the ones with millions in them, C would be undoubtedbly right? You wouldn’t know they were a small company and so on…