Subtopics

ASC 720, Other Expenses, contains nine subtopics:

• ASC 720-10, Overall, which merely lists the other subtopics
• ASC 720-15, Start-Up Costs
• ASC 720-20, Insurance Costs
• ASC 720-25, Contributions Made
• ASC 720-30, Real and Personal Property Taxes
• ASC 720-35, Advertising Costs
• ASC 720-40, Electronic Equipment Waste Obligations
• ASC 720-45, Business and Technology Reengineering
• ASC 720-50, Fees Paid to the Federal Government by Pharmaceutical Manufacturers and Health Insurers.

Scope and Scope Exceptions

ASC 720-15. ASC 720-15 applies to all nongovernmental entities. Routine ongoing efforts to improve existing quality of products, services, or facilities are not start-up costs. The subtopic lists specific activities that are not considered start-up costs and should be accounted for in accordance with other existing authoritative literature:

1. Ongoing customer acquisition costs, such as policy acquisition costs (see Subtopic 944-30)
2. Loan origination costs (see Subtopic 310-20)
3. Activities related to routine, ongoing efforts to refine, enrich, or otherwise improve upon the qualities of an existing product, service, process, or facility
4. Activities related to mergers or acquisitions
5. Business process reengineering and information technology transformation costs addressed in Subtopic 720-45
6. Costs of acquiring or constructing long-lived assets and getting them ready for their intended uses (however, the costs of using long-lived assets that are allocated to start-up activities [for example, depreciation of computers] are within the scope of this Subtopic)
7. Costs of acquiring or producing inventory
8. Costs of acquiring intangible assets (however, the costs of using intangible assets that are allocated to start-up activities [for example, amortization of a purchased patent] are within the scope of this Subtopic)
9. Costs related to internally developed assets (for example, internal-use computer software costs) (however, the costs of using those assets that are allocated to start-up activities are within the scope of this Subtopic)
10. Research and development costs that are within the scope of Section 730-10-15
11. Regulatory costs that are within the scope of Section 980-10-15
12. Costs of fundraising incurred by NFPs
13. Costs of raising capital
14. Costs of advertising
15. Costs incurred in connection with existing contracts as stated in paragraph 605-35-25-41(d).

    (ASC 720-15-15-4)

16. Learning or start-up costs incurred in connection with existing contracts or in anticipation of future contracts for the same goods or services.
17. Costs incurred in connection with acquiring a contract.¹ASC 720-25. ASC 720-25 does not apply to:
    • Transfers of assets that are in substance purchases of goods or services for equal value. If the donor exchanges assets or services for assets of substantially lower value, the contribution is within the scope of ASC 720-25.
    • Transfers where the reporting entity acts as an agent, trustee, or intermediary, and not as a donor.
    • Tax exemptions, tax incentives, or tax abatements.
    • Transfers of assets from governments to business entities.

      (ASC 720-25-15-2)

ASC 720-35. ASC 720-35 applies to all entities, but does not apply to the following transactions:

1. Direct-response advertising costs of insurance entity (for guidance, see Subtopic 944-30).
2. Advertising costs in interim periods (for guidance, see paragraph 270-10-45-7).
3. Costs of advertising conducted for others under contractual arrangements.
4. Indirect costs that are specifically reimbursable under the terms of a contract.
5. Fundraising by NFPs (however, this Subtopic does apply to advertising activities of NFPs).
6. Customer acquisition activities, other than advertising.
7. The costs of premiums, contest prizes, gifts, and similar promotions, as well as discounts or rebates, including those resulting from the redemption of coupons. (Other costs of coupons and similar items, such as costs of newspaper advertising space, are considered advertising costs.)

   (ASC 720-35-15-3)

ASC 720-35 may or may not apply to activities, such as product endorsements and sponsorships of events, which may be performed pursuant to executory contracts. (ASC 720-35-15-4)

ASC 720-10, Overall

ASC 720-10 provides no guidance. It merely lists all the subtopics in Topic 720.

ASC 720-15, Start-Up Costs

ASC 720-15 provides guidance on financial reporting of start-up costs, including organization costs and requires such costs to be expensed as incurred. In addition to items mentioned in the Scope section of this chapter, other costs outside the scope are: store advertising, coupon giveaways, uniforms, furniture, cash registers, obtaining licenses, deferred financing costs, related to construction activities, such as security, property taxes, insurance, and utilities.

ASC 720-20, Insurance Costs

ASC 720-20 provides guidance on:

• Retroactive contracts
• Claims-made contracts
• Multiple-year retrospectively rated contracts.

Guidance for each of the above is in a separate subsection.

The premium paid minus the amount of the premium retained by the insurer is accounted for as a deposit by the insured. This is only to “the extent that an insurance contract or reinsurance contract does not, despite its form, provide for indemnification of the insured or the ceding entity by the insurer or reinsurer against loss or liability.” (ASC 720-20-25-1)

ASC 720-25, Contributions Made

ASC 720-25 states that contributions made are expenses in the period when the contribution is made. There should also be a decrease in assets or increase in liabilities. ASC 958 contains guidance on conditional contributions.

ASC 720-30, Real and Personal Property Taxes

Accrued real estate and personal property taxes represent the unpaid portion of an entity's obligation to a state, county, or other taxing authority that arises from the ownership of real or personal property, respectively. ASC 720-30 indicates that the most acceptable method of accounting for property taxes is a monthly accrual of property tax expense during the fiscal period of the taxing authority for which the taxes are levied. The fiscal period of the taxing authority is the fiscal period that includes the assessment or lien date.

A liability for property taxes payable arises when the fiscal year of the taxing authority and the fiscal year of the entity do not coincide or when the assessment or lien date and the actual payment date do not fall within the same fiscal year.

ASC 720-35, Advertising Costs

The costs of advertising are expensed either as costs are:

• incurred, or
• the first time the advertising takes place (e.g., when the television advertisement is aired or printed copy is published), if later. (ASC 720-35-25-1)

Depreciation or amortization costs of a tangible asset used for advertising is a cost of advertising.

Materials, such as sales brochures and catalogues, are accounted for as prepaid supplies until they are used. At that time, they are accounted for as advertising costs. (ASC 720-35-25-3)

ASC 720 has a separate section on communication advertising—television, airtime, and print advertising space. Costs associated with communication advertising are reported as advertising expense when used. (ASC 720-35-25-5)

Advertising expenditures are sometimes made subsequent to the recognition of revenue (such as in “cooperative advertising” arrangements with customers). In order to achieve proper matching, these costs are to be estimated, accrued, and charged to expense when the related revenues are recognized.

ASC 720-40, Electronic Equipment Waste Obligations

ASC 720-40 contains “guidance on accounting for historical electronic equipment waste held by private households for obligations associated with Directive 2002/96/EC on Waste Electrical and Electronic Equipment adopted by the European Union.” (ASC 720-40-05-01)

A commercial user of electronic equipment acquired on or prior to August 13, 2005, is required to capitalize an asset retirement cost, as outlined in ASC 410, by increasing the carrying amount of the related asset by the same amount as the liability associated with the waste disposal obligation. If the asset is subsequently replaced, the obligation is shifted to the producer of the replacement equipment, so the user must calculate that portion of the payment to the replacement equipment producer relating to the transfer of the ARO, and eliminate the associated liability from its statement of financial position, while recognizing a gain or loss based on the difference between the liability on the sale date and that portion of the payment related to the ARO. Meanwhile, the producer of the new asset recognizes revenue for the total amount of the sale, less the fair value of the ARO.

ASC 720-45, Business and Technology Reengineering

ASC 720-45 states that the cost of business process reengineering activities should be expensed as incurred. This includes internal efforts or third-party activities.

ASC 720-50, Fees Paid to the Federal Government by Pharmaceutical Manufacturers and Health Insurers

ASC 720-50 provides guidance on certain provisions of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act. Those Acts require pharmaceutical manufacturers and health insurers to pay annual fees.

The liability should be “estimated and recorded in full upon the first qualifying sale for pharmaceutical manufacturers or once the entity provides qualifying health insurance for health insurers in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable.” (ASC 720-50-25-1)