Premium Essay

Polymedica

In: Business and Management

Submitted By rnmeier
Words 757
Pages 4
Amid inquiry from the SEC, and the Department of Justice, and in the atmosphere of negative press, executives at Polymedica have been forced to publicly address concerns regarding accounting practices of their direct response advertisement. Short sellers began unloading stock, stating that Polymedica was misleading investors with overstated assets and revenue. According to GAAP of expense recognition, all advertising is recorded as expense. To understand these circumstances, it is necessary to define assets and expenses and their differences as it relates to this case. Assets are all things of value that the organization has the right to use including financial resources, equipment and other physical resources in order to generate business. Examples of assets are cash and cash equivalents (things that can be converted to cash quickly), amounts owed to the organization (accounts receivable), and marketable securities. Assets also include the plant, property, and equipment that is owned by the company and used in the production of goods and services. Another type of assets includes intellectual property such as copyrights or patents which outline rights to profit generated exclusively under these documents. Assets are sub-divided into current and non-current with current assets to be utilized during the current operating cycle which is usually 1 year. Assets are disclosed on the balance sheet and provide a snapshot of the company’s financial resources and are balanced against liabilities to show owner equity. Expenses are outflows or other use of assets and/or incurrence of liabilities that occur in the delivery of goods and services. These are reflected in the income statement and are deducted from revenue to show net income for a given time period, usually the operating cycle of 1 year. The net income then reflects the company’s viability and

Similar Documents

Premium Essay

Polymedica

...Advertising whereby the only connection the consumer has to the product is the advertising and the only way a consumer can act on the advertisement or commercial is to return a coupon or make a phone call. Direct-response advertising is geared to eliminate an intermediary in the purchase process. It can utilize a wide range of media, from matchbook covers to print or radio and television, although it is typically conducted through the mail. In direct-response advertising, the effectiveness of the advertising is directly related to the amount of sales. Thus people who specialize in it are very knowledgeable about the correlation between positioning an advertisement in a publication and the resulting audience responses. Thus it focused on direct response customer right from 1996 to reach a larger portion of Medicare eligible patients to market their products. This specifically was a pretty successful campaign, as the company increased its Medicare eligible diabetes customer base from 17,000 to 545,000 in 2003. To qualify as capitalized expenditure as assets, the direct responses expenses had to prove that the specific advertisements generated sales. Leads normally did not qualify. It has to be narrowly targeted and the response needs to be tracked. The company ran various advertising commercials on the television with each commercial being given a separate toll free number. For each customer, the firm kept a track of prescription, doctor and insurance carrier. All customer names...

Words: 3520 - Pages: 15

Premium Essay

Capitalizing Polymedica

...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...

Words: 327 - Pages: 2

Premium Essay

Notes

...The University of Illinois Executive MBA July 13, 2004 Tentative Syllabus Managerial Perspective on Financial Accounting Accountancy 401X; Fall 2004 Michael J. Sandretto, 225C David Kinley Hall (217) 244-6410 (office); (217) 352-4832 (home, before 10:30 p.m.) sandrett@uiuc.edu or michaeljsandretto@earthlink.net Texts: Antle, Rick, and Stanley J. Garstak, Financial Accounting, Southwestern (United States), second edition, 2004 (Antle). Palepu, Krishna G., Paul M. Healy, and Victor L. Bernard, Business Analysis and Valuation: Using Financial Statements, Text Only, Southwestern (United States), fourth edition, 2004 (Palepu). Background: Accounting is called the language of business for at least two reasons. First, accounting terms such as sales, revenues, profit, net income, costs, gross margin, expense, and capitalize are widely used in business. Any businessperson is expected to understand those terms. Second, managers rely on accounting to understand an organization’s economic condition at a point in time and its economic performance over a period of time. As a result, they use accounting information to communicate with others. Managerial Perspective on Financial Accounting will help you understand publicly available financial statements for publicly traded companies and financial statements prepared for internal use. It is also an introduction to financial statement analysis and valuation methods. The basic financial accounting methodology...

Words: 2809 - Pages: 12