This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.

ASC 720 — Other Expenses

Below is an overview of FASB Accounting Standards Codification Topic 720, Other Expenses, as well as a list of FASB Accounting Standards Updates (ASUs) and proposed ASUs related to this Topic.

Overview

ASC 720 comprises eight Subtopics (Overall, Start-Up Costs, Insurance Costs, Contributions Made, Real and Personal Property Taxes, Advertising Costs, Electronic Equipment Waste Obligations, Business and Technology Reengineering, and Fees Paid to the Federal Government by Pharmaceutical Manufacturers and Health Insurers). Below is an overview of each Subtopic.

720-10 Overall

ASC 720-10 notes the Subtopics contained in the Other Expenses Topic and notes that each Subtopic contains standalone guidance and has no relationship with the other Subtopics in ASC 720.

720-15 Start-Up Costs

ASC 720-15 notes the following:

 

This Subtopic provides guidance on the financial reporting of start-up and organization costs. This Subtopic defines start-up activities and provides Examples to help entities determine which costs fall within the scope and outside the scope of this Subtopic.

720-20 Insurance Costs

ASC 720-20 provides guidance on retroactive contracts, claims-made contracts, and multiple-year retrospectively rated contracts. In addition, this Subtopic also contains guidance on "deposit accounting resulting from contracts that do not transfer insurance risk."

720-25 Contributions Made

ASC 720-25 notes that it "provides guidance on accounting for contributions made, including unconditional promises to give."

720-30 Real and Personal Property Taxes

ASC 720-30 notes that it "addresses the accounting for real and personal property taxes, specifically, when to record the tax liability and the amounts to be charged to income in future periods."

720-35 Advertising Costs

ASC 720-35 notes the following:

 

This Subtopic provides guidance for annual financial statements on the following:

  1. Reporting the costs of advertising, which shall be expensed either as incurred or the first time the advertising takes place
  2. The financial statement disclosures that shall be made about advertising.

This Subtopic does not provide guidance for direct-response advertising (see Subtopic 340-20) whose primary purpose is to elicit sales to customers who can be shown to have responded specifically to the advertising and that results in probable future benefits. If future economic benefits do result from advertising, they generally would be in the form of revenue. New technology, sources of information, and measurement techniques have given some entities the ability to better estimate the future economic benefits that could result from certain kinds of advertising.

720-40 Electronic Equipment Waste Obligations

ASC 720-40 notes the following:

 

This Subtopic provides 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.

This Subtopic refers to and paraphrases various provisions of the Directive. Nothing in this Subtopic shall be considered a definitive interpretation of any provision of the Directive for any purpose.

The Directive distinguishes between new and historical waste. New waste relates to products put on the market after August 13, 2005. All products put on the market on or before August 13, 2005, are deemed to be historical waste equipment for the purposes of the Directive. This Subtopic does not address the accounting for new waste. As explained in paragraph 410-20-55-23, costs relating to waste of new equipment are to be borne solely by the producers of the new equipment.

For the financing of historical waste, the Directive also distinguishes between historical waste from private households and historical waste from users other than private households (commercial users). This Subtopic provides guidance for historical waste from private households, while Subtopic 410-20 provides guidance for historical waste from commercial users.

720-45 Business and Technology Reengineering

ASC 720-45 notes the following:

 

This Subtopic provides guidance on costs associated with business process reengineering and information technology transformation projects. The following describes such projects.

To take advantage of new advances in electronic commerce and in computer technologies, many entities are entering into consulting contracts that combine business process reengineering and information technology transformation. Consulting services may encompass software development, software acquisition, software implementation, training, and ongoing support. Business process reengineering may be a component of some of those activities.

Information technology transformation projects that involve software packages (sometimes called enterprise software) recently have been undertaken by entities that must reengineer their business processes to connect into that software rather than modify that software to connect into their existing business processes. The transformation project may include the installation of new computer hardware, the purchase of office equipment, furniture, or work stations, and the physical reconfiguration of the work area.

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

ASC 720-50 notes the following (as amended by ASU 2010-27, Other Expenses (Topic 720): Fees Paid to the Federal Government by Pharmaceutical Manufacturers—a consensus of the FASB Emerging Issues Task Force):

 

This Subtopic provides guidance on the annual fees paid by pharmaceutical manufacturers and health insurers to the U.S. Treasury in accordance with the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act (the Acts).

The Acts impose annual fees on the pharmaceutical manufacturing industry for each calendar year beginning on or after January 1, 2011, and on the health insurance industry for each calendar year beginning on or after January 1, 2014. An entity’s portion of the annual fee is payable no later than September 30 of the applicable calendar year and is not tax deductible.

For the pharmaceutical manufacturing industry, the annual fee will be allocated to individual pharmaceutical manufacturers on the basis of the amount of their branded prescription drug sales for the preceding year as a percentage of the industry’s branded prescription drug sales for the same period. A pharmaceutical manufacturing entity’s portion of the annual fee becomes payable to the U.S. Treasury once the entity has a gross receipt from branded prescription drug sales to any specified government program or in accordance with coverage under any government program for each calendar year beginning on or after January 1, 2011.

For the health insurance industry, the annual fee will be allocated to individual health insurers based on the ratio of the amount of an entity’s net premiums written during the preceding calendar year to the amount of health insurance for any U.S. health risk that is written during the preceding calendar year. A health insurance entity’s portion of the annual fee becomes payable to the U.S. Treasury once the entity provides health insurance for any U.S. health risk for each calendar year beginning on or after January 1, 2014.

The full text of ASC 720 can be found in the FASB Accounting Standards Codification (link to the FASB's Web site; registration required). Also, the full text of the Codification and Deloitte-authored Q&As related to the Codification are available in the Deloitte Accounting Research Tool (DART) Web site (subscription required).

Content from the FASB Accounting Standards Codification® included at http://www.usgaapplus.com is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116, and is reproduced with permission.

FASB Accounting Standards Updates

    The following ASUs amended the guidance in this Topic:

    Proposed FASB Accounting Standards Updates

      No current proposed ASUs on Topic 720.

      Correction list for hyphenation

      These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.