Tuesday, February 28, 2012

Why is advertising not considered an asset?

Why is advertising not considered an asset?

Under accounting standards, for an expenditure by a company to be recognized as an asset on the balance sheet it needs to pass several tests:

  1. It is very probable that future economic benefits will flow to the company from the asset
  2. These future economic benefits can be measured reliably
Proving economic benefits from an activity that is only promoting your products is not easy to justify. Therefore advertising expenditure is simply expensed out and not treated as an asset. However, if the advertising is directed at creating a new separate and distinct asset, then the costs may be capitalized into this new assets cost.

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