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FR&A For analytical purposes, the effects of capitalizing interest can be reversed by making the following adjustments: Interest

that was capitalized during the year should be added to interest expense. The amount of interest capitalized is disclosed in the financial statement footnotes. Capitalized interest, net of depreciation recognized to date, should be removed from assets and shareholders' equity. The allocation of interest capitalized in previous years should be removed from depreciation expense. Interest that was capitalized during the year is classified as a cash outflow from investing activities. For analysis, it should be added back to cash How from investing activities and subtracted from cash How from operating activities. Ratios such as interest coverage and profitability ratios should be recalculated with the restated figures. The interest coverage ratio and net profit margin will likely be lower without capitalization. Let's work through an extended example of the financial statement effects of capitalizing interest. If expenditure is expensed, current period net income is reduced by the after-tax amount of the expenditure.

With some exceptions, costs incurred by the firm to create intangible assets are expensed as incurred. Important exceptions are research and development costs and software development costs. IFRS: An asset is impaired when its carrying (book) value (original cost less accumulated depreciation) exceeds the recoverable amount. The recoverable amount is the greater of "fair value less any selling costs" and the "value in use." Value in is the present value of the future cash Bow stream from continued use. If impaired, the asset is written-down on the balance sheet to the recoverable amount, and an impairment loss, equal to the excess of carrying value over the recoverable amount, is recognized in the income statement. US GAAP: Revocability: An asset is considered impaired if the carrying value (original cost less accumulated depreciation) is greater than the asset's future undiscounted cash flow stream. The excess of carrying value over the fair value of the asset (or the discounted value of the future cash flows if the fair value is not known), is recognized as impairment loss in the income statement.