Revenue for Telecoms

Revenue for Telecoms – Issues In-Depth | 129
7.1 Costs of obtaining a contract |
340-40-25-3
[IFRS 15.93]
Costs that will be incurred regardless of whether the contract is obtained – including
costs that are incremental to trying to obtain a contract, are expensed as they are
incurred, unless they meet the criteria to be capitalized as fulfillment costs (see 7.2).
An example of such costs are costs to prepare a bid, which are incurred even if the
entity does not obtain the contract.
Would costs be incurred
regardless of whether the
contract is obtained?
No
Are the incremental costs
expected to be recovered?
Yes
Do they meet the criteria
to be capitalized as
fulfillment costs?
Yes
Yes
Capitalize costs
No
Expense costs as they are
incurred
No
Example 52 – Costs incurred to obtain a contract
Telco E enters into a two-year wireless contract with Customer C that includes
voice and data services. The contract is signed at one of Telco E’s stores and
the sales employee receives a commission of 30 when the customer signs
the contract. Telco E has also incurred costs related to a two-week advertising
campaign. On signing the contract, the customer indicates that he came into the
store in response to this advertising campaign.
The commission paid to the sales employee is an incremental cost to obtain the
contract with the customer because it is payable only on successfully obtaining
the contract. Because the contract term is more than 12 months, the practical
expedient does not apply. Telco E therefore capitalizes the sales commission of
30 as a cost of obtaining the contract. For discussion of the amortization period,
see 7.3.
In contrast, the advertising costs, although they are associated with trying to
obtain the contract, are not incremental costs of obtaining the contract. That
is, the advertising costs would have been incurred even if no new customer
contracts were acquired. Consequently, Telco E expenses the advertising costs as
they are incurred.
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