I was just doing some schweser FSA questions and there is a question regarding capitalizing marketing costs. It said that marketing costs directly related to sales can be capitalized? Has anyone ever heard of this or know what it is talking about. I cannot think of an example where this would be possible and under what scenario? Any help would be appreciated.
Direct sales, (aka telemarketing) where you can relate revenue earned directly to costs incurred. Just think to any situation where cost/benefit can be directly linked.
Think of the promos running on the TV, “call now and you will receive…”. The marketing costs that are expected to produce immediate sell is capitalized.
if you just made a direct sale…wouldn’t you recognize the cost related to it? why the need to capitalize? plus what about the times you are unsuccessful in making a sale…do you expense then?
To quote CFAI text: “In December 1994, the AcSEC of the AICPA issued Practice Bulletin 13, Direct-response Advertising and Probable Future Benefits, requiring capitalization of the costs of direct-response advertising that results in probable future benefits.” So if you close the sale over the phone, and charge customer’s card for the sale price - match costs incurred to do so and expense. This cost is rather tricky to figure out. Moreover, some of the sales could be closing later, producing “Probable Future Benefits”, thus we can capitalize the costs incurred with direct-response.
Would it be possible to capitalize costs related to client acquisition in wealth management, as the fee revenue occurs over the life of the relationship?