Interestingly (though I don't necessarily agree with it), I read an article about the benefits of capitalizing advertising (I work in media ad sales, so it's a topic from time to time).
Typically, spending is capitalized if there are long term benefits associated (capital goods that depreciate over time, but generate income over that period). Advertising does just that.
I'm not saying I agree, but the case was pretty good. The one thing that it didn't account for was ineffective advertising, which can be extremely detrimental. If you overspend on capital goods, these goods may just be a lost expense, and you can still sell the asset at a depriciated cost (or leave it unused until you need it).
Advertising, once spent, is gone. So if it's ineffective, you can't get it back and may have to spend more to fix the damage.
It's that final point that makes me think advertising SHOULDN'T be capitalized. But, it is true that good advertising has an immediate impact which then depreciates over time (Apple 1984)...unless it is followed up by more good advertising (which Apple failed with a year later). |
