cv4cfa

"it will show on balance sheet as interest (30mil) and deducted from EBIT, when it is capitalised, the interest would be (0mil) and nothing would be deducted off EBIT."

You mean it will show on income statement, I presume.

And why should EBIT change?
When interest is expensed, it is deducted from EBIT, therefore EBT is affected, not EBIT.
Capitalized interest should not be added back to EBIT.


"When interest is capitalised EBIT is higher"

On CFAI book 2 page 64 solution to 1, EBIT is higher if interest is expensed.



Edited 1 time(s). Last edit at Sunday, May 15, 2011 at 08:52AM by zestzorb.