How to journal an expenditure that provided no value
Let's say I buy a logo on a service like Fiverr for .50. The logo doesn't meet my needs, but I'm still obligated to pay the graphic artist for services rendered.
If the logo had met my needs, I'd consider it an intangible asset. In this case, though, the logo has no value to me. When I credit my Cash account the .50, into what account should I put the offsetting entry?
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By IAS 38 — Intangible Assets,
Recognition criteria. IAS 38 requires an entity to recognise an
intangible asset, whether purchased or self-created (at cost) if, and
only if: [IAS 38.21]
it is probable that the future economic benefits that are attributable to the asset will flow to the entity; and
the cost of the asset can be measured reliably.
A useless Logo is by definition an expense, whether you spent .50 or 00.
There may be other ways to model this, but I'd say it's still an intangible asset. You own it, you just don't like it enough to use it. It may have no resale value, but it's still an asset.
Well I'd hate to get complicated for .50, I believe the technically correct way to record this would be:
step 1: purchasing the logo: credit cash (or however you paid), debit intangible assets
step 2: you decided that the logo is worthless: credit intangible assets, debit write-offs (an expense account).
Depending on how complex your accounting system is, you may just have one write-off account or you may have many.
As long as you retain legal rights to the logo, it is debatable if you can write it down to zero. As long as you retain the right to use it in the future, this implies that you believe it has some potential value. Though I can't imagine an auditor is going to pursue this very far for something that cost .50. If you had invested ,000 in developing the logo, that would be a different story.
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