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How interest on short term borrowings is different from interest on long term borrowings?
Can we treat interest on overdraft, trade finance, trust receipt discounting and invoice discounting as operating expense or it is a finance cost.
When we calculate ROCE and we take EBIT/Capital Employed at this moment do we need to deduct all type of interest and bank charges to Reach EBIT and leave interest on long term debt as finance cost. If a company is continuously using overdraft which is three time more than its share capital and it has other credit line from bank which is being used most of the time but only to fund working capital, Would that be treated as long term debt or can we use interest in it as finance cost?An overdraft that is effectively permanent I suppose could be treated as long term even though in theory at least it’s probable that the bank could call it in at any time (substance over form)
But as for treating interest on debt (long or short) as operating expense sounds unlikely to me!
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