Wyoming Wines Ltd has suffered a significant reduction in profitability, as a result of the current economic downturn and doubts about the quality of certain boutique wines. The company’s profit for the year ended 30 June 2020 was only $2 150 000. The general purpose financial reports for the year disclosed a note regarding the company’s policy on wine advertising as follows.

Advertising costs expecting to generate significant future economic benefits have been treated as an asset and carried forward to future years to be expensed against the future expected revenues. Management intends to review these deferred costs on a regular basis.

The statement of financial position/balance sheet revealed that an amount of $10 million had been treated in this manner up to the end of 30 June 2020 as there was an item called Deferred Expenditure in the statement of financial position/balance sheet. This represented a change to the previous accounting policy of writing off advertising as it was incurred.

A finance report in the local newspaper commented that normally advertising is charged as an expense in the period it is incurred. The auditor of the company did not mention the deferred expenditure in the audit report.

Required 

In light of the Conceptual Framework, evaluate Wyoming Wines Ltd’s treatment of the advertising expenditure carried forward.