Question

Lenexa State Bank has followed the practice of capitalizing certain marketing costs and amortizing these costs over their expected life. In the current year, the bank determined that the future benefits from these costs were doubtful. Consequently, the bank adopted the policy of expensing these costs as incurred. How should the bank report this accounting change in the comparative financial statements?

Short answer

Marketing costs refer to the cost of showing goods to its future customers, and they should be reported immediately.

Step-by-step solution

Definition of marketing costs

Marketing costs are defined as the cost incurred on presenting the goods and services of the company to their prospective customers.

Treatment of accounting change

This situation is an example in which it is difficult to differentiate between a change in accounting principle and a change in estimate. In this situation, the change is considered the change in estimates, which should be handled currently and prospectively. Therefore, all the costs which are capitalized should be expensed immediately.