IAS 38 — Goods acquired for promotional activities

Date recorded:


In June 2017, the IC discussed how an entity accounts for goods (e.g. watches, fridges, cars) that it purchases for onward distribution to potential customers for promotional purposes. The IC concluded that an entity should recognise the promotional goods acquired as an expense when it has a right to access the goods, regardless of when it distributes the goods. The IC believed that the requirements of IAS 38 are clear in this regard and decided not to add this issue onto its agenda.

Feedback from comment letters received

Six comment letters were received. Two respondents disagreed with the IC’s technical conclusion. The other respondents did not raise any significant comments.

The respondents who disagreed with the IC’s technical analysis argued that the promotional goods under consideration have significant tangible value and can be legitimately used for other purposes. IAS 38.4 requires an entity to assess whether the tangible or intangible aspect of an item is more significant when determining whether the item is within the scope of IAS 38. In this case, the tangible value of the goods may be argued to be more significant than the intangible value of the goods (i.e. the car, fridge or watch is able to function as such without losing any of its inherent value even without the entity’s branding). This indicates that the goods are not within the scope of IAS 38. These respondents believe that a more appropriate assessment would be whether there is an alternative means (other than for promotional purposes) by which value could be generated from the goods. If so, the goods should be accounted for under the relevant Standard.

Staff analysis

The Staff pointed out that in the submission, the goods are used solely for promotional purposes. Accordingly, the costs incurred are an ‘expenditure on advertising’ which is specifically included within the scope of IAS 38 (IAS 38.5). The Staff believed that an entity should not consider the significance of the tangible versus intangible elements (IAS 38.4) when it has been determined that an expenditure is incurred for advertising or promotional purposes.

Furthermore, the Staff believed that IAS 38.BC46B to BC46C clearly require that an entity consider the purpose for which it has acquired the goods. If an entity acquires the goods solely for promotional purposes, the entity should not recognise an asset simply because it could derive benefits from other potential uses.

In light of the above, the Staff continued to agree with the IC’s technical conclusion.

Staff recommendation

The Staff recommended that the IC finalise the agenda decision subject to drafting changes.


The IC agreed to finalise the agenda decision.

Two IC members disagreed with the technical conclusion for the same reasons given by the dissenting respondents set out above and those given in the June 2017 IC meeting. However, all other eleven IC members concurred with the Staff’s analysis and believed that the intention of the entity to use the goods for promotional purposes is of paramount importance and that intention trumps the physical attributes or functionality of the goods. They also noted that the revised agenda decision has added the word ‘solely’ in its explanation: ‘if an entity acquires the goods solely for promotional purposes’, it is clear that those goods have no other purpose than to undertake those activities and so they fall squarely within the scope of IAS 38.BC46B.

Nonetheless, the two members who objected were unconvinced on grounds that IAS 38.BC5 indicates that the intention with which management holds an asset is not relevant to its classification as an intangible asset. Furthermore, intention is not the same as commitment. Given that there is no commitment to distribute the goods for promotional purposes and management’s intention can change subsequently for valid reasons, it is not appropriate to expense the goods at the outset. One of the IC members also questioned whether it would be appropriate for an entity to expense its own inventories as soon as a decision is taken to distribute those stock for promotional purposes, instead of waiting till the actual distribution. No one responded.

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