Treatment of Marketing Cost (Accounts)

This query is : Resolved

Yogesh Gupta

( Author )
03 October 2008

Hello friends.
I want to know about the accounting treatment of Marketing & Branding expenses incurred prior to the commencement of the operation of an new assets.
For example whether we should capitalize or expanse off the marketing expense incurred prior to the commencement of the commercial operation of an Hotel or let say before the launch of an product?
I have two different opinion on that first being that as we can not strictly identify the marketing & branding cost with any particular assets, such as building, land & hence it should be expense off rather than distributed over other assets. Second marketing & branding expenses are necessary to create demand or visibility for the company or the product, hence it should be capitalize over other assets.
Please suggest what is the correct accounting treatment for the same in view of AS-26, AS-10 & Any judgment by courts.

CA V. Mohanakrishnan

( Expert )
03 October 2008

the same needs to be treated as pre-operative expenses and amortised as deferred expenditure rather than capitalise the same

Venkat Rao Marella

( Expert )
03 October 2008

The view of Mr. Mohanakrishnan is correct.

Yogesh Gupta

( Author )
03 October 2008

Thanks a lot Sir
But the problem is that As per AS-26, now we can not deferred the expense such as marketing & branding as they do not meet the criteria set for deferring the expense in AS-26. Hence you can defer the expense upto FY 2010 after which AS-26 is mandatory.

Yogesh Gupta

( Author )
03 October 2008

Thnks