Advertisement Expenditure
This query is : Resolved
25 November 2008
A company has incurred advertisement expenditure of Rs. 5 crore in 2007-08 the effect of which will sustain for 3 years. what will be the treatment of such expenditure-whether it will be deferred or charged to the P/L or be treated as per AS-26. Please suggest.
25 November 2008
As per Income Tax authorities, deferred revenue expenditure will not be allowed as an expenditure in subsequent year. In my opinion Defer it as per books and make fully allowed in Profit and loss adjustment a/c.(i.e as per IT)
25 November 2008
In my opinion [From Accounting Point of View], it should be charged to P & l account as per AS 26 and not deferred:
As per para 56 of "AS 26 Intangible Assets", kindly Refer the following points especially No.c
In some cases, expenditure is incurred to provide future economic benefits to an enterprise, but no intangible asset or other asset is acquired or created that can be recognised. In these cases, the expenditure is recognised as an expense when it is incurred.
For example, expenditure on research is always recognised as an expense when it is incurred (see paragraph 41). Examples of other expenditure that is recognised as an expense when it is incurred include:
(a) expenditure on start-up activities (start-up costs), unless this expenditure is included in the cost of an item of fixed asset under AS 10. Start-up costs may consist of preliminary expenses
incurred in establishing a legal entity such as legal and secretarial
costs, expenditure to open a new facility or business (pre-opening costs) or expenditures for commencing new operations or launching new products or processes (pre-operating costs);
(b) expenditure on training activities;
(c) expenditure on advertising and promotional activities; and
(d) expenditure on relocating or re-organising part or all of an
enterprise.
As per para 56 of "AS 26 Intangible Assets", kindly Refer the following points especially No.c
In some cases, expenditure is incurred to provide future economic benefits to an enterprise, but no intangible asset or other asset is acquired or created that can be recognised. In these cases, the expenditure is recognised as an expense when it is incurred.
For example, expenditure on research is always recognised as an expense when it is incurred (see paragraph 41). Examples of other expenditure that is recognised as an expense when it is incurred include:
(a) expenditure on start-up activities (start-up costs), unless this expenditure is included in the cost of an item of fixed asset under AS 10. Start-up costs may consist of preliminary expenses
incurred in establishing a legal entity such as legal and secretarial
costs, expenditure to open a new facility or business (pre-opening costs) or expenditures for commencing new operations or launching new products or processes (pre-operating costs);
(b) expenditure on training activities;
(c) expenditure on advertising and promotional activities; and
(d) expenditure on relocating or re-organising part or all of an
enterprise.
25 November 2008
Thanks for the reply. But still I am not satisfied. 'AS 26' is applicable in case of expenditure on Advertising, Training, Start-up, Research and Development(though the expenditure on research is always recognized as an expense) etc. Again Intangible Asset should be recognized only if it is probable that future economic benefits will flow to the enterprise and the cost of such asset can be measured reasonably. So, from this viewpoint can the advertisement expenditure be treated as Intangible Asset as both the conditions of recognition of Intangible Asset is met in the given case.
07 October 2009
Hello, is this an old query still pending? You can send me a Pm if yes....I m trying to take all old pending queries in Accounting Forum......Thanx.
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07 October 2009
Hello, is this an old query still pending? You can send me a Pm if yes....I m trying to take all old pending queries in Accounting Forum......Thanx.
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