Last update 03/02/2020
Examples 36–37 illustrate the requirements in paragraphs 91–94 of IFRS 15 on incremental costs of obtaining a contract, paragraphs 95–98 of IFRS 15 on costs to fulfil a contract and paragraphs 99–104 of IFRS 15 on amortisation and impairment of contract costs.
Example 36—Incremental costs of obtaining a contract
IE189 An entity, a provider of consulting services, wins a competitive bid to provide consulting services to a new customer. The entity incurred the following costs to obtain the contract:
| CU | |
| External legal fees for due diligence | 15,000 |
| Travel costs to deliver proposal | 25,000 |
| Commissions to sales employees | 10,000 |
| Total costs incurred | 50,000 |
IE190 In accordance with paragraph 91 of IFRS 15, the entity recognises an asset for the CU10,000 incremental costs of obtaining the contract arising from the commissions to sales employees because the entity expects to recover those costs through future fees for the consulting services. The entity also pays discretionary annual bonuses to sales supervisors based on annual sales targets, overall profitability of the entity and individual performance evaluations. In accordance with paragraph 91 of IFRS 15, the entity does not recognise an asset for the bonuses paid to sales supervisors because the bonuses are not incremental to obtaining a contract. The amounts are discretionary and are based on other factors, including the profitability of the entity and the individuals’ performance. The bonuses are not directly attributable to identifiable contracts.
IE191 The entity observes that the external legal fees and travel costs would have been incurred regardless of whether the contract was obtained. Therefore, in accordance with paragraph 93 of IFRS 15, those costs are recognised as expenses when incurred, unless they are within the scope of another Standard, in which case, the relevant provisions of that Standard apply.
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