Expense or capitalize advertising production costs?

Doug Thompson's Profile

Would the costs of producing a video ad be expensed upfront or capitalized?

Answers

Member's Profile

The production cost can be either be expensed as incurred or deferred until the ad actually runs, at which point all the deferred costs are expensed (as long as the ad is actually expected to run).

See SOP 97-3

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Materiality determines if GAAP is applied.

Look at how you are treating all the costs associated with your web marketing if this is a video that will run on the web. If the production group actually hosts the content then perhaps you pay them a fee and continue to expense your hosting costs as operating expenses. Not enough detail to know what type or use the video is.

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Member's Profile

Just to clarify, he was asking about production costs of the ad. Hosting costs would always be expensed. Additionally, SAB 99 would also suggest that "Materiality determines if GAAP is applied" is not the proper way to look at the problem. You cannot account for something incorrectly and rely solely on the concept materiality to escape the issue.

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