Charging an interest cost as an expense when it should be capitalised as an asset will result in:
A) an overstatement of total assets.
B) the understatement of net profit for the next period.
C) an overstatement of interest expense for the next period.
D) the understatement of net profit for the current period.

Question

Quizplus · Accepted Answer

Charging an interest cost as an expense when it should be capitalised as an asset leads to an understatement of net profit for the current period because the interest cost will reduce net profit. Capitalising the interest cost as an asset allows it to be spread over the useful life of the asset and reduces the impact on net profit in the current period.

Charging an Interest Cost as an Expense When It Should