QUESTION ONE

[25]

Sticky Stuff Ltd is a manufacturing company engaged in the production of adhesives. The company has not performed well over the past two financial years. To improve on the poor past profits, the board approved a R500 000 advertising promotion during the year ended 30 June 2022 in order to generate increased sales in the future. The advertising promotion took place (and was paid for) during June 2022.

The accountant insists on recognizing the R500 000 payment as an asset at 30 June 2022. Her reasoning is that future sales will increase as the number of customers grows due to the advertising campaign.

Required:

Discuss whether you agree with the accountant, making reference to the framework.

Provide an alternate treatment if you disagree.