Accounting for Advertising Assets by Dale L. FlesherReview by: John T. Ahern, Jr.The Accounting Review, Vol. 55, No. 1 (Jan., 1980), pp. 210-211Published by: American Accounting AssociationStable URL: http://www.jstor.org/stable/246198 .

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210 The Accounting Review, January 1980

as an overview of the total research effort. Chap- ter 3 discusses the role of the dissertation com- mittee, while Chapter 4 describes the process of converging on a general area for investigation.

The next five chapters discuss steps in organiz- ing and writing a dissertation. Chapter 5 con- cerns the selection of a dissertation topic, characteristics of a good topic, sources for find- ing potential topics, and research efforts that generally will not be accepted as dissertations. This chapter also presents a strategy for initiating a literature search, and provides ample citations. Chapter 6 describes steps in developing, refining, and presenting a dissertation proposal. A disser- tation timetable and budget are discussed in Chapter 7. Chapter 8 describes aids that facilitate effective interaction between the candidate and his dissertation committee, and Chapter 9 pre- sents planning and control procedures useful in managing dissertation activities.

The last chapter concerns the dissertation defense and publication of the research results. Students will find a set of typical questions asked at a defense, and suggested approaches to answers, to be very useful. The three appendices are titled, "Selected Tools and Techniques for Searching the Literature," "Selected References on Research," and "Using the Computer to Process Analyses of Research Data." Each ap- pendix contains a sufficient bibliography.

The authors have accomplished all of their objectives in a clean, lean, and direct presenta- tion. They have answered many of the questions which doctoral candidates have asked over the years, and they provide insight into issues about which many more candidates should have had questions. Their book reads fast: it can be fully digested in less than three hours, even by those who only achieve moderate reading speed. The efficient presentation, in conjunction with the price of the book, make it very cost-effective. Doctoral candidates, doctoral dissertation com- mittee members, and master's candidates en- gaged in thesis writing should include Writing the Doctoral Dissertation on their "must read" book list.

RONALD M. COPELAND Professor of Accounting

University of South Carolina

DALE L. FLESHER, Accounting for Adver- tising Assets (University, Mississippi: University of Mississippi, 1979, pp. vii, 97, $5.00).

This book reports the results of a study which was designed to analyze the problems involved in

accounting for costs of advertising. The study has four objectives: (1) to review the historical development of accounting for intangible assets, (2) to investigate current generally accepted ac- counting principles for advertising costs, (3) to recommend improvements in the accounting for advertising costs, and (4) to determine whether it would be appropriate for accountants to rely on certain marketing models which have been developed in order to establish guidelines for the expensing of capitalized advertising costs.

The second chapter contains a summary of the historical development of accounting for intangi- bles, along with a recapitulation of recent developments and a list of historical references at the end of the chapter. The main theme of the third chapter is that advertising expenditures have future benefits which can be substantiated and ought, therefore, to be capitalized and amortized in future periods. The author argues that the accounting profession is unaware of recent developments in marketing which, if adopted, would enable accountants to "more properly allocate the marketing costs to the revenues subsequently resulting from such costs." In the author's view, the allocation of advertising costs to the period in which they are incurred is arbitrary and cannot be justified from a theoretical standpoint. A more reasonable ap- proach would be to attempt to establish a corre- lation between current advertising expenditures and revenues which follow in subsequent periods.

Support for the practice of capitalization of some portion of advertising expenditures is pro- vided in Chapter IV, where three different advertising decay models are described which might prove useful to accountants in allocating advertising costs between periods. Applications of some of the models are presented in Chapter V. The models are (1) advertising awareness models, (2) multivariate regression models, and (3) experimental design models. To utilize adver- tising awareness models would require the firm to measure the rate at which consumers forget having seen the firm's advertisements. Such a rate would then be used as a basis for allocating advertising costs over time. Multiple regression techniques could be utilized by firms that have collected both sales and advertising data for several years. With such data available, the ac- countant could use multiple regression to draw inferences regarding what percentage of revenue is dependent upon current-period advertising expenditures and what share is dependent on past expenditures. This model enables the ac- countant to measure the percentage of current-

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Book Reviews 211

period advertising expenditures which can be expected to generate revenue in future periods. When this percentage is determined, the ac- countant capitalizes the appropriate amount of advertising expenditures. Since the model gen- erates data correlating sales with advertising expenditures over time, it can be used as a basis for subsequent amortization of the previously capitalized expenditures. Experimental design models could be employed by the firm to mea- sure the carryover benefits of advertising. The Vidale-Wolfe model is cited as being particularly appropriate because of its high rate of ac- ceptance by the marketing profession. To em- ploy experimental design models, the firm must perform studies which attempt to measure the percentage of advertising expenditures which result in sales in future periods. Such percentages could be used to allocate costs over several periods.

The overall tone of the book is normative, since the author clearly favors the capitalization of advertising costs. The author has done an excellent job, however, of making a balanced presentation. Both the advantages and limita- tions of the advertising decay models are clearly explained.

This study is of particular interest to two groups. Accounting researchers interested in exploring the possibility of employing new tools to obtain improvements in matching costs and benefits will find this book thought-provoking. The techniques described could also be utilized by participants in merger negotiations in order to support or refute dollar values attributed to existing advertising goodwill in a combining company.

JOHN T. AHERN, JR. Associate Professor

DePaul University

CHARLES H. GIBSON and PATRICIA A. BOYER, Financial Statement Analysis (Boston, Mass.: CBI Publishing Compa- ny, Inc., 1979, pp. x, 456, $15.95).

Given the level of FASB and SEC activity in recent years, preparation of financial statements has become increasingly complex. The added burden on the accounting student increases the tendency to resort to a "cookbook" approach to learning. A financial statement analysis (FSA) course offers advantages in this environment. It reinforces and deepens the student's previous ac- counting education by focusing on interpretation as opposed to presentation. By involving the

student in real data as seen by real users, a greater appreciation of the contributions of and compromises underlying accounting data is possible.

Gibson and Boyer have authored a new text- book targeted for an introductory one term undergraduate course in traditional Financial Statement Analysis. FSA is a traditional text in that it investigates relationships (ratios) at the individual firm level. These relationships are first examined within an individual firm's finan- cial statements at a point in time and then across time. Cross-sectional and time series compari- sons are also made with other firms and with industry averages. Macro-level concepts such as assessment of systematic risk in a portfolio con- text, firm (or equity) valuation models, and financial distress prediction models are not discussed.

Each chapter begins with an outline of subjects to be covered. The first two chapters present a brief review of the concepts underlying the con- ventional accounting model and introduce the components of financial statements. In order to maintain brevity and to avoid confusion, con- siderable detail is omitted. For instance, the authors state: "In a period of rising prices, LIFO gives the best cost of goods sold figure, in terms of current valuation" (p. 32). This is, of course, not the case when inventory levels are declining. The authors also state that "To be conservative in analysis, consider deferred taxes payable to be a liability" (p. 35), and "Since minority interest is seldom material, we recommend that it be con- sidered a liability to simplify the analysis" (p. 39). These points do not appear to be expanded upon later in the text. The reviewer leaves it to the reader to decide whether these simplifications are appropriate. At a minimum, prior or con- current training in financial accounting is manda- tory.

Chapters 3 through 10 are the core of the book. Ratio analysis and common-size state- ments are the central techniques of traditional FSA. Ratio analysis is given detailed attention in each of three categories: short term liquidity, long term borrowing ability, and profitability. Traditional subjects omitted or only briefly touched on include accounting for foreign opera- tions and accounting for research and develop- ment costs. In the case of R & D, the authors imply that the uniformity imposed by FASB Statement No. 2 avoids confusing those who analyze financial statements (p. 358).

The authors correctly emphasize the impor- tance of comparisons to the analyst. As an example, sample industry ratios from five differ-

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