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?

Answer 1

The bank should provide the change in accounting treatment and disclose it in the notes to the accounts. The effect of the change in the amount of income and the amount of assets in the balance sheet should be quantify. The fact that the marketing costs have been expended instead of capitalization shall be mentioned along with its impact on the financial performance and position of the company in the notes to the accounts. This will help the users of the financial statement to assess the impact of the change in accounting treatment of the financial performance and position of the company to compare the financial outcomes of the past with that of the current year accurately.