Consumer Ltd, a retail company, started its operation on 1 January 2021. You have been appointed as the Chief Financial Officer of the company. To make its name familiar to the consumers, Consumer Ltd spent millions of dollars on advertising in the first year. The company CEO was worried about the negative impact of the advertising expenditure on profit of the first year. He argued for the capitalisation of the advertising expenditure as an intangible asset on the argument that advertising helps consumers to familiarised themselves with the name of the company, and the company will benefit from this. RequiredEvaluate whether capitalising the advertising expenditure would be the correct accounting policy under NZ IAS 38.

As per NZ IAS 38, Intangible Assets, An Intangible Assets are only to be recognised if they are…

Answered: Consumer Ltd, a retail company, started…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Consumer Ltd, a retail company, started its operation on 1 January 2021. You have been appointed as the Chief Financial Officer of the company. To make its name familiar to the consumers, Consumer Ltd spent millions of dollars on advertising in the first year. The company CEO was worried about the negative impact of the advertising expenditure on profit of the first year. He argued for the capitalisation of the advertising expenditure as an intangible asset on the argument that advertising helps consumers to familiarised themselves with the name of the company, and the company will benefit from this.

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Evaluate whether capitalising the advertising expenditure would be the correct accounting policy under NZ IAS 38.

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