Colleen Horner FASB Project 17 April 2014

1. Should the advertising costs be amortized or expensed? 2. The advertising expenses will either be expensed when it occurs or when the advertisement takes place. Production costs should be expensed at the time that occurs. Costs of airtime or an ad in a newspaper is recorded when it is used. Brochures, magazines, etc. are seen as prepaid supplies until they are no longer owned. 3. See ASC 720-35-25 25-1 The costs of advertising within the scope of this Subtopic shall be expensed either as incurred or the first time the advertising takes place. The accounting policy selected from these two alternatives shall be applied consistently to similar kinds of advertising activities. Deferring the costs of advertising until the advertising takes place assumes that the costs have been incurred for advertising that will occur. Such costs shall be expensed immediately if such advertising is not expected to occur. Examples of the first time advertising takes place include the first public showing of a television commercial for its intended purpose and the first appearance of a magazine advertisement for its intended purpose.

Tangible Assets 25-2 For purposes of applying this Subtopic, costs incurred to produce film or audio and video tape to be used to communicate advertising do not create tangible assets.

25-3 Sales materials, such as brochures and catalogues, may be accounted for as prepaid supplies until they no longer are owned or expected to be used, in which case their cost would be a cost of advertising and shall be accounted for in conformity with the guidance in this Subtopic. If the lawn mower company decides to use brochures and catalogues to advertise, then they should record them in accordance with this statement.

Producing Advertising 25-4 Costs of producing advertising are incurred during production rather than when the advertising takes place. Production costs of the advertising campaign (if any) should be expensed when incurred.

Communicating Advertising 25-5 Costs of communicating advertising are not incurred until the item or service has been received and shall not be reported as expenses before the item or service has been received, except as discussed in paragraph 340-20-25-2. For example: a. The costs of television airtime shall not be reported as advertising expense before the airtime is used. Once it is used, the costs shall be expensed, unless the airtime was used for direct-response advertising activities that meet the criteria for capitalization under paragraph 340-20-25-4. If Great Mowers is using TV ads, then they should not expense the cost of the airtime until the commercial airs. b. The costs of magazine, directory, or other print media advertising space shall not be reported as advertising expense before the space is used. Once it is used, the costs shall be expensed, unless the space was used for direct-response advertising activities that meet the criteria for capitalization under paragraph 340-20-25-4. If Great Mowers is using print media, then much like TV ads, they should not expense the cost of these ads until the ads run.