Q7.4

Commences Q7.4 and all other advertising costs are expensed as incurred as components of marketing, general and administra- The production of in-store photography and signage is expensed when tive expense on the income statement. Discuss why the expensing of advertising costs is considered to be best practice. Can an argument be made that advertising costs should be capitalized? Revaluation of Long-lived Assets. The Queensbury Corporation was founded in 1947 on a decommissioned military installation that had been purchased from the U.S. government for a price of $1. Today, that same land carries a fair market value of $70 million. Consistent with the historical cost principle, The Queensbury Corporation continues to value the land at its original purchase price of $1 plus the cost of any improvements (such as roadways, lights, and drainage). Discuss the financial statement problems created by the historical cost principle for entities like The Queensbury Corporation that have significant investments in long-lived appreciating assets (such as land). Should these companies be allowed to revalue these assets? Why? How would a land revaluation be reflected in the financial statements? Q7.5 Capitalization of Interest Costs and Earnings Quality. Under U.S. GAAP, a company may capitalize any interest costs associated with borrowings used in the self-construction of a business asset. Any capitalized inter- est is added to the cost basis of the asset and then depreciated over the expected useful life of the asset. Some investment professionals question the appropriateness of interest canitalization observing that