A company (say Company X) is a key player in media industry. The requirements of media industry is such that the company continuously needs to incur heavy amount on promotions, advertising, internal and external communications and promotions, incurring expenditure on campaigns such as save water, save energy, Green earth, etc. The company incurs substantial expenditure on branding and goodwill building by undertaking certain promotional activities, like promotion of achievements, print and electronic media advertisement, promotion on social media etc. X would reap the benefits of this expenditure in future over long period. So, the company does not want to charge the expenditure incurred on branding to statement of profit and loss in a single year but amortise the same over future periods.
Whether the company X can defer and amortise the expenditure incurred on branding and advertisement (as mentioned above) over future years?
As per Para 35 of AS 26, “Intangible Assets“, “Internally generated goodwill should not be recognised as an asset.” So, the company X cannot recognise the goodwill developed after incurring of expenditure on branding and advertisement.
As per Para 50 of AS 26, “Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance should not be recognised as intangible assets.” So, the company X cannot recognise brands developed after incurring of branding expenditure.
As per Para 56 of AS 26, in some cases, expenditure is incurred to provide future economic benefits to an enterprise, but no intangible asset or other asset is acquired or created that can be recognised. In these cases, the expenditure is recognised as an expense when it is incurred. This para also states certain specific examples of such expenditure, which includes expenditure in advertising and promotional activities.
From the above guidance available in AS 26, the expenditure so incurred by the company X on branding and advertising should not be amortised over future years and should be charged off to the statement of profit and loss.