Capitalized Advertising Costs, ASC 340

Advertising Costs
AICPA Statement of Position (SOP) 93-7
“Reporting on Advertising Costs”

General Principle
Advertising costs are expensed
–> except for (A)
(A) Direct-response advertising

When are advertising costs expensed?
Entities have a choice of (1) and (2)
(1) Expensed when incurred
(2) Expensed when the advertising takes place first time

Advertising expenditures after revenue recognition
–> When the entity reimburses the costs of “cooperative advertising” after advertising takes place
–> Advertising costs are expensed when related revenue is recognized

Direct-response advertising costs are capitalized if both conditions are met
1. Primary purpose of advertising is
–> to promote sales to certain customers
–> whose responses to the advertising can be documented
2. Probable future benefits from direct-response advertising

Capitalized advertising costs are amortized
–> on a “cost-pool-by-cost-pool” basis
–> over the period of future benefits

Realizability test for subsequent measurement
If future benefit is less than carrying amount
–> expense the excess as advertising costs during the period