In this particular case Pics ltd has shown in their financial position $7.5 million of marketing cost as non-current assets. As a consequence the investors are not satisfied with the accounting treatment. According to the investors the marketing cost should be considered to be of revenue nature. Instead the organization has shown this cost as of capital nature. If the company incurs any expenditure and discloses a capital expenditure than full description should be given about that capital expenditure. In this particular case Pic limited has incurred $ 7.5 million for the marketing cost and has shown the same as non- current assets. In this particular case full disclosure should have been made in the statement of financial position of the company. These disclosers are as follows:-
- Use full life of asset and amortization rate used
- The amortization method uses
- The gross carrying amount, accumulated amortization at the beginning and end of the period
Further disclosure has to be given in following conditions-
- If amortization period is more than ten years then reason should be disclosed that why the use full period of assets has increased; as per the standard, the amortization period should not be more than 10 years.
- The particular research and development expenses recognized as capital expenses during the period.
- The particular expense has done for the future economic benefit of intangibility.
- Carrying amount of intangible assets
- Any changes in the carrying amount of intangible assets during the period
If the company discloses these things in their statement of financial position then it will be clarified to investors or outsiders why the cost of the asset has been considered to be of capital nature. In other words, it is compulsory for every company to disclose the details of expenditure of intangible assets in statement of financial position. In the above case company should follow the above mentioned points and give full disclosure about the marketing cost which has been shown as a non- current asset for appropriateness of capitalization of marketing cost (Barth, Kasznik and McNichols, 2001). However, the expenditure has been recognized as an intangible asset as the organization expects certain future measurable economic benefits to flow to the organization.