Prepay Brochures?

PGM

Is it possible to prepay sales brochures, still in stock at year end to the following year?

I wasn't sure if it'd meet the rules, because the cost was generated this year, and of course they're not sold.

slackda

Marketing Expense, surely can be prepaid over the period that the expense is relevant.

PGM

slackda wrote: »

Marketing Expense, surely can be prepaid over the period that the expense is relevant.

Well thats what I thought but a colleague said no, which left me dazed and confused. Thankyou.

AK002

Surely if you still hold them technically it's counted as stock?

PGM

AK002 wrote: »

Surely if you still hold them technically it's counted as stock?

I thought so, made me wonder if theres different rules for stock which isn't sold on. Or is stock a misleading name for sales brochures?

paulstafford

When I worked for a tour operator, we used to prepay a proportion of brochure costs.

Our simple rule was if brochure included holidays for future years we prepaid the % costs of the brochure devoted to these holidays, leaving the balance chargeable in the current year.

This accounting policy was disclosed in the notes to financial statements.

No brochure costs were held in Stock - brochures aren't stock ( unless you are a printer of brochures).

AK002

Aye that's true, they're not technically sold... suppose so!

PGM

Thanks Paul, I'm sure we can do similar, and 100% of the brochure is still relevant so we should be able to prepay the cost of the quantity not used. (not stock)

paulstafford

Perhaps the policy should be determined by the level of profit you want the company's financial statements to disclose?

deanshepherd

I would include it in stock and not as a prepayment.

In my own accounts I always have a stock figure for postage, stationery and marketing materials.

Just because it is not a cost of sale, it does not mean it is not stock. Just remember to credit the relevant expense code rather than closing stock in cost of sales.

PGM

Thanks Dean.

PGM

deanshepherd wrote: »

I would include it in stock and not as a prepayment.

In my own accounts I always have a stock figure for postage, stationery and marketing materials.

Just because it is not a cost of sale, it does not mean it is not stock. Just remember to credit the relevant expense code rather than closing stock in cost of sales.

This all marketing cost business has cropped up again.

Auditors won't let us capitalise the website or prepay/ record as stock any of the brochures.

Because they don't have a net realisable value, and the future benefit from them is not "nearly certain".

Apparently Argos couldn't prepay their catalogues, and if they can't, theres no chance for us...

deanshepherd

That's a very interesting point, particularly the net realisable value. I guess stationery and brochures would indeed have no value at all to a 3rd party.

Interesting that they say you cannot prepay them either, surely that is just matching the expenses to the period in which they are consumed.

Steve will have to enlighten us!

PGM

deanshepherd wrote: »

That's a very interesting point, particularly the net realisable value. I guess stationery and brochures would indeed have no value at all to a 3rd party.

Interesting that they say you cannot prepay them either, surely that is just matching the expenses to the period in which they are consumed.

Steve will have to enlighten us!

I'm still a little confused so help from Steve would be great to clear the situation up.

Maybe can't prepay because it doesn't relate to a specific period? But likewise, confused.

Steve Collings

Ref the website: website costs can only be capitalised if they meet the recognition criteria set out in UITF 29 at paragraph 6. In simple terms, the website must be able to generate revenues i.e. have an ordering facility. If your website does not do this, your auditors are correct.

Re the brochure prepayments - I can see the net realisable reference for stock purposes and can see why (possibly) the auditor may not recognise them as prepayments due to uncertain future revenues. If you look at paragaraph 4.13 of the Statement of Principles it refers to 'Future Economic Benefits' as follows:

Capacity to obtain future economic benefits is the essence of an asset and is common to all assets irrespective of their form. Therefore, to be an asset, the right or other access must be capable, singly or in combination with other assets, of yielding economic benefits.

I think the problem your auditors have with the brochures is that they cannot establish the matching of the prepaid expense with the (anticipated) revenue.

Interestingly, para 4.15 goes on about future economiic benefits not always being about cash flows and para (c) specifically says:

payments made to external parties for services to be received from them in the future (such as prepayments) result in access to future economic benefits because they represent rights to receive services or to return of the payment.

In the absence of other relevant information, I think your auditors have a problem with the text I have put in bold. Though if it's not material then there's no need for your auditor's to require adjustment.

Good luck
Steve

PGM

Thanks Steve, thats realyl useful advice.

I thought it would have met the part you put in bold.

Although, as the auditor said, if Argos couldn't get their brochure costs prepaid, and I'm sure they have access to good advice, although I don't know the details of the case.

I'll discuss the none cash flow benefit with them, thankyou!

Steve Collings

Hi

I can only go off the information on here but generally brochures do not necessarily guarantee that you are going to make sales so on the face of it, I can't see how you would establish a prepayment for it. If we as a firm did a brochure to promote our practice, I don't see how we could prepay the costs of such because there's no guarantee we would get clients from it so in this case it would just simply go to advertising costs.

However, that is not to say the detailed facts of your scenario regarding the brochures would not warrant a prepayment. Simply saying Argos couldn't get away with it isn't really a basis to dispute a client's treatment - you must go off what GAAP or companies legislation says and relate this to the individual case. If the treatment conflicts with GAAP/Co Act then clearly there is a dispute.

As I said earlier, if the prepayment is immaterial (both individually and when combined with any other misstatements), it will not affect the auditor's opinion.

Kind regards
Steve

PGM

I think that clears it up, we're the same really, theres no guaranteed income so we won't be able to pre-pay the cost.

Really appreciate you explaining all that, has been puzzling me for sometime now.

thanks
Paul

PGM

Sorry for bringing this old thread back, again.

So marketing brochures can't be help as an asset.. What about signage? Exterior building signage works.