We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

StarMedia Network

The whole doc is available only for registered users

A limited time offer! Get a custom sample essay written according to your requirements urgent 3h delivery guaranteed

Order Now


For the Spanish and Portuguese speaking population, the company provides various internet based services like chat, topical portals, online shopping, business news, sports news and so on. For this, the company owns six websites.


1. Revenues are basically from advertisements on the sites. Advertisements are in 3 forms.

Per thousand impressions: Here money is charged based on per thousand impressions on the advertisements.

Sponsoring: Here the advertiser sponsors/pays a fixed amount of money for an area.

Reciprocal Advertising: Here advertisers are given space on their website in exchange for StarMedia’s advertisements on their newspapers/news channels. They are nothing but reciprocal transactions

2. The websites are free for the users. Nothing is charged for the content or to be part of the community.


1. There are two options available for recording the reciprocal transaction.

a. The company can record $5.5 million in revenue from advertisement s and $5.5 million in expenses for advertising.

b. The company need not record the transaction in its books but can mention this as Notes to accounts in the financial statements.

2. As the CFO, I would recommend that the company choose option (a) of the previous answer. This would mean that the gross profits of the company would look better by $5.5 million. The expense would affect only the net profit and this would be beneficial for the company because dot com companies are always evaluated based on their gross margins.

3. As a member of FASB, we would allow the barter transaction to be recorded if and only if the same type of advertisement had been sold/ bought not before 6 months to parties unrelated to the buyers/sellers.

If such reliable estimates of fair value are not available then the revenue and the cost should not be allowed to be recorded.

This is on the basis of a CPA journal which says


Some [Internet] entities record an equal amount of revenue and expense for the [advertising] space they sell and for the space they purchase resulting in no effect on net income or cash flows. To the extent that revenues include barter transactions for which there is no ultimate realization in cash and no effect on net income, the practice may lead to overstated revenues and artificially inflated market capitalization. The issue is whether Internet barter transactions that involve a nonmonetary exchange of rights to place advertisements on web sites result in recorded revenues and expenses.

At its January 2000 meeting, the EITF reached a consensus on the following:

* That revenue and expense should be recognized in a barter transaction only if the fair value of the advertising exchanged is determinable based on a company’s historical practice of cash sales of similar types of advertising with buyers unrelated to the counterparty in the barter transaction.

* The historical practice of cash sales must have occurred no more than six months prior to the barter transaction.

* Because previous cash sales are used to benchmark the fair value of the barter transaction, barter revenues and expenses can be recognized only up to the amount of the previous cash sale.

* Moreover, the bartered advertisement must be essentially the same as the advertisement sold for cash (e.g., same type of advertisement, same website).

Related Topics

We can write a custom essay

According to Your Specific Requirements

Order an essay
Materials Daily
100,000+ Subjects
2000+ Topics
Free Plagiarism
All Materials
are Cataloged Well

Sorry, but copying text is forbidden on this website. If you need this or any other sample, we can send it to you via email.

By clicking "SEND", you agree to our terms of service and privacy policy. We'll occasionally send you account related and promo emails.
Sorry, but only registered users have full access

How about getting this access

Your Answer Is Very Helpful For Us
Thank You A Lot!


Emma Taylor


Hi there!
Would you like to get such a paper?
How about getting a customized one?

Can't find What you were Looking for?

Get access to our huge, continuously updated knowledge base

The next update will be in:
14 : 59 : 59