Capitalizing the Direct – Response Advertising Expenditures
In capitalizing the direct-response advertising, the effectiveness of the advertising is directly related to the amount of sales. The accounting practice of revenue recognition at Polymedica includes an effective tracking system, tying the sale directly to the advertisement. To satisfy the requirements of linking customers and probable economic benefits to specific direct-response advertising, a means of documenting that response is required. The use of 800 numbers, coded order forms, coupons, or response cards; and a log of customers who made phone calls to a number appearing in an advertisement, linking those calls to the advertisement are examples of this. Thus, shows about the correlation between positioning an advertisement in a publication and the resulting audience responses. The system ensures a process of continued business (future economic benefit) which is further expensed as administrative costs. The repeat order process, as well as follow up with physicians and third party payers is required, but does not constitute further marketing.

With direct-response advertising, the incremental direct costs of the advertising incurred are capitalized if the primary purpose of the advertising was to elicit sales to customers who specifically responded to the advertising and the advertising resulted in probable future benefits. This specifically was a pretty successful campaign, as the company increased its Medicare eligible diabetes customer base from 17,000 to 545,000, as well as its sales in 2003. Thus the company that has ability to show the reasonable proof that requested by SOP 93-7. Given the business process conducted by Polymedica, direct-response advertising expenditures for diabetic and respiratory products and calling service costs meets the capitalized direct-response advertising costs