938 According to paras 55 and 56 to AS 26 Intangible Assets", "expenditure on an intangible item should be recognised as an expense when it is incurred unless it forms part of the cost of an intangible asset". In the given case, advertisement expenditure of Rs. 2 crores had been taken up for the marketing of a new product which may provide future economic benefits to an enterprise by having a turnover of Rs. 25 crores. Here, no intangible asset or other asset is acquired or created that can be recognised. Therefore, the accounting treatment by the company of debiting the entire advertisement expenditure of Rs. 2 crores to the Profit and Loss account of the year is correct. Problem A company had imported raw materials worth US Dollars 6,00,000 on 5th January, 2005, 1.33 when the exchange rate was Rs. 43 per US Dollar. The company had recorded the transaction in the books at the above mentioned rate. The payment for the import trans- action was made on 5th April, 2005 when the exchange rate was Rs. 47 per US Dollar. However, on 31 March, 2005, the rate of exchange was Rs. 48 per US Dollar. The company passed as entry on 31st March, 2005 adjusting the cost of raw materials consumed for the difference between Rs. 47 and Rs. 43 per US Dollar. In the background of the relevant accounting standard, is the company's accounting treatment correct? Discuss