Question

You are the CFO of Jordan company. The year-end of Jordan is 31 March. The CEO of Jordan company informed you that the company intends to open a new branch in the next few weeks. The company has spent a substantial sum on a series of television advertisements to promote this new branch. The company paid for advertisements costing JOD 1,500,000 before 31 March 2018. JOD 900,000 of this sum relates to advertisements shown before 31 March 2018 and JOD 350,000 to advertisements shown in April 2018. Since 31 March 2018, The company has paid for further advertisements costing JOD 250,000. A discussion between the CEO and the board of directors whether these costs should be written off as expenses in the year to 31 March 2018. The board of Directors doesn’t want to charge JOD 3 million. Required: Explain and justify the treatment of these costs of JOD 3 million in the financial statements for the year ended 31 March 2018 according to IAS 38 assuming that market research indicates that this new branch is likely to be highly successful.

Answer 1

IAS 38 expands this definition for intangible assets by specifying that on top of basic definition, an intangible asset is an identifiable non-monetary asset without physical substance.

To sum up, each intangible asset has 3 main characteristics:

It is controlled by the entity

No physical substance

It is identifiable.

Some companies invest heavy cash into their advertising campaigns

Your advertising agency told you that this campaign would build and strengthen your brand and position in many years to come.

The only thing is that the advertising campaign is NOT identifiable – you can’t separate it and sell it to someone else.

Therefore, you should recognize the expenditures for advertising campaign in profit or loss.

Of course, when you prepay the campaign for let’s say 2 years, then you should recognize the expenses over 2 years as the services are consumed

Baseo on the above provisions only JD900000 charged to this year and remaining balance in up coming years.