Hi, can anybody tell me.. the benefits/objectives of capitalizing interest expense or when and why do companies capitalize interest expense...?

Question

anonymous · Answer

The decision to capitalize interest will have an effect on a company's: Net income - In the current period earnings will be higher (overstated). CFO - In the current period, CFO will be higher (overstated) because the interest expense will be included in CFI. CFI - In the current period, CFI will be lower (understated). Assets - Total assets will be overstated because they include the capitalized interest. Solvency ratios - Since assets, EBIT and stockholders' equity will be higher, all solvency ratios will be overstated. check this: http://www.investopedia.com/exam-guide/cfa-level-1/assets/capitalizing-expensing.asp#axzz2GVMVwYzB