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U.S. GAAP
Financial Accounting Review

Section 3150: Capitalized Advertising Costs

1. General Principle
Advertising costs are expensed, except for (A)
(A) Direct-response advertising

2. 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

3. 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

4. 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

5. Capitalized advertising costs are amortized
--> on a "cost-pool-by-cost-pool" basis
--> over the period of future benefits

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