Hello,

I came across this problem,

This client gives clients products to use as a test run. If they like it, they'll buy the product, but not the demo. Demo doesn't usually get sold. So I am wondering if this should be capitalized, expensed or amortized.

Thank you for taking the time to read this.

Ahmad

The demo(s) should be expensed.

Thank you very much PurpleLagoon, but could you please tell me which accounting rule/guideline you used.

Again, thanks a lot for you time,

Ahmad

As the CFO of a large manufacturing company, we consider the demos/prototypes as just a cost of doing or obtaining business. As in many accounting situations, there are always more then one way to skin a cat. Another accountant may choose one of the other methods.

Demonstration products, Products distributed as free samples are treated as cost incurred to promote the product therefore taken as advertisement expenses. If the amount of advertisement expense is huge then the expense is treated as deferred revenue expense and thus capitalized. The amount is amortized as long as the benefit is assumed to be derived. Amortized amount is charged to Income statement and the balance appears in the balance sheet as a fictitious asset. If the advertisement amount is not a huge amount then the entire amount is expensed in the year in which it is incurred.