ABC is considering issuing new shares to finance expansion. The management prepared the following income statement for
Question:
ABC is considering issuing new shares to finance expansion. The management prepared the following income statement for the period ending 31 December 2019, to be submitted to the board of directors for its approval:
The CFO suggests that the $450 million spent on marketing costs on 1 January 2019, which is currently treated as an expense, should be capitalised and amortised over three years instead. This treatment was consistent with treatment of similar costs by other companies he had previously worked for.
1. Recalculate and prepare a new 2019 income statement to reflect the proposed change in the accounting policy for marketing costs.
2. Should the marketing costs be considered an asset? Apply the relevant definition and recognition criteria in your answer.
3. Discuss the cash flow implications of the proposed accounting policy change for 2019 and 2020.
Step by Step Answer:
Financial Accounting An Integrated Approach
ISBN: 9780170411028
7th Edition
Authors: Ken Trotman, Elizabeth Carson