accounting treatment for capitalizing the accumulated consultancy charges

Topics: Marketing, Accountancy, Financial Accounting Standards Board Pages: 3 (633 words) Published: July 27, 2014
Golden Gate & Associates, CPA
99 Biscuit Lane, Suite 800
San Francisco, CA 94108

May 14, 2014
Grace Lau, Chairman
ABC-VC
536 Mission Street, Suite 500
San Francisco, CA 94105

Dear Ms. Lau,
Thank you for CAA for accounting treatment in regards to your venture capital stake in WesternGraphics (Western). In our introductory meeting, you requested this firm to research on the accounting treatment for capitalizing the accumulated MediaBlitz marketing consultancy charges ncurred and the staff salaries. I am able to confirm that the marketing consultancy charges and the staff salaries can be capitalized and amortized over more than one tax year. In reaching this conclusion, I referred to relevant authority from codifications from the Financial Accounting Standards Board. In addition, I have also reviewed the documents provided to this firm during our earlier meeting. Facts

The facts as was provided to us are as follows: Western hired a high-priced marketing consultancy company, MediaBlitz, to come-up with an integrated marketing strategy for computer game “Project.” MediaBlitz was tasked to develop a very catchy slogan that Western will use in a multimillion dollar advertising campaign along with other things. Before the winning slogan was developed, they had presented others that Western rejected as unsuitable for Project's image. Therefore, Western has incurred a marketing expense of $750,000. Western wants to capitalize the entire amount of the consulting bill. Western knows the final billing contains charges for the rejected phrases but they reason that the rejected phrases were an integral part of developing the winning slogan. Western will also capitalize the costs of staff salaries of $300,000 for the time they spent in meetings with MediaBlitz. Western intends to amortize the capitalized amounts over the expected product-life of the game. Applicable Codifications

The applicable codifications from Financial Accounting Standards Board (FASB)...
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