Contract costs

• Costs examined (nature, contract to which they relate, whether incremental, rechargeable to the customer)

  TextRequired

• Incremental costs of obtaining the contract that are expected to be recovered (sales commissions, for example)

  Number

  60,000

• Costs of obtaining that would have been incurred regardless of the contract (not rechargeable)

  Number

  20,000

• Costs to fulfil meeting the three capitalisation conditions (excluding costs within another standard)

  Number

  40,000

• Costs to be expensed (general and administrative costs not rechargeable, wasted resources, costs of obligations already satisfied)

  Number

  18,000

• Expected period of transfer of the related goods or services (years, specifically identified anticipated contracts included)

  Number

  5 units

  Documented estimate of the entity, adjusted for a significant change in the expected timing (para. 99 and 100); the standard sets no period.

• Amount not amortised at the end of the transfer period (generally nil; enter 0)

  Number

  0

• Carrying amount of the contract cost asset at the date of the test

  Number

  80,000

• Remaining consideration expected for the related goods or services (without the constraint, credit risk considered)

  Number

  300,000

• Costs that relate directly to providing those goods or services and have not yet been recognised as expenses

  Number

  120,000

• Evidence obtained and referenced (category, document reference)

  EvidenceRequired

IFRS 15 §91IFRS 15 §92IFRS 15 §93IFRS 15 §94

• Criteria examined

  ChecklistRequired

  • Incremental cost (not incurred without the contract) expected to be recovered: recognised as an asset
  • Cost incurred whether or not the contract is obtained: expense, unless explicitly chargeable to the customer
  • Practical expedient: immediate expense if the amortisation period would be one year or less

IFRS 15 §95IFRS 15IFRS 15 §97IFRS 15

• Conditions examined

  Checklist

  • Costs within another standard (inventories, property, plant and equipment, intangible assets): accounted for under that standard
  • Costs relating directly to an existing or specifically anticipated contract (direct labour and materials, direct allocations, rechargeable costs, costs incurred only because of the contract)
  • Resources generated or enhanced that will be used in satisfying future obligations
  • Recovery expected
  • Expensed: general and administrative costs not rechargeable, wasted resources not reflected in the price, costs of obligations already satisfied, costs that cannot be attributed

IFRS 15 §99IFRS 15 §100IFRS 15IFRS 15 §102IFRS 15IFRS 15 §104

• Points examined

  ChecklistRequired

  • Systematic amortisation consistent with the transfer of the related goods or services (identified anticipated contracts included)
  • Significant change in the expected timing: prospective adjustment (change in estimate, IAS 8)
  • Impairment loss if the carrying amount exceeds the remaining consideration expected (without the constraint, credit risk included) less related costs not yet expensed
  • Impairment losses on related assets within other standards recognised first; then the cash-generating unit test (IAS 36)
  • Reversal if conditions have improved, capped at the carrying amount net of amortisation without impairment

IFRS 15 §91IFRS 15 §95IFRS 15 §99IFRS 15

• Contract cost asset (incremental costs of obtaining + costs to fulfil capitalised)

  CalculationRequired

  100,000

  Incremental costs of obtaining the contract that are expected to be recovered (sales commissions, for example) ; Costs to fulfil meeting the three capitalisation conditions (excluding costs within another standard)

• Annual amortisation (asset / expected period of transfer)

  Calculation

  20,000

  Contract cost asset (incremental costs of obtaining + costs to fulfil capitalised) ; Amount not amortised at the end of the transfer period (generally nil; enter 0) ; Expected period of transfer of the related goods or services (years, specifically identified anticipated contracts included)

  Teaching assumption: straight-line allocation assumes an even transfer of the goods or services; the standard requires amortisation consistent with the pattern of transfer (para. 99), without imposing a method.

• Impairment loss (carrying amount − (remaining consideration − costs not yet expensed), if positive)

  Calculation

  0

  Carrying amount of the contract cost asset at the date of the test ; − Remaining consideration expected for the related goods or services (without the constraint, credit risk considered) ; Costs that relate directly to providing those goods or services and have not yet been recognised as expenses

• Capitalisation of contract costs

  EntryRequired

  Account	Debit	Credit
  Contract cost asset	100,000
  Payables		100,000

  Teaching assumption: the capitalised costs are owed to third parties (commission owed to the salesperson, for example); adapt the credit side if a cost is settled otherwise.

• Amortisation for the period

  Entry

  Account	Debit	Credit
  Amortisation expense of contract costs	20,000
  Contract cost asset		20,000

• Impairment loss

  Entry

  Debit Impairment loss on contract costs ← Impairment loss (carrying amount − (remaining consideration − costs not yet expensed), if positive) ; Credit Contract cost asset ← Impairment loss (carrying amount − (remaining consideration − costs not yet expensed), if positive)

IFRS 15 §91IFRS 15 §93IFRS 15 §94IFRS 15 §95IFRS 15IFRS 15

• Treatment retained for the costs examined

  JudgmentRequired

  Partly capitalised, the remainder expensed

  Recognised as a contract cost asset / Recognised as an expense when incurred / Immediate expense under the practical expedient (amortisation over one year or less) / Accounted for under another standard / Partly capitalised, the remainder expensed

• Rationale: facts relied on, analysis, alternative rejected

  TextRequired

• Impact by caption, derived from the entries above (the Notes line refers to the disclosures)

  TableRequired

IFRS 15 §127IFRS 15 §128IFRS 15 §129

• Items passed to the notes workpaper (“Revenue note”)

  ChecklistRequired

  • Closing balance of the asset by main category (costs of obtaining, set-up costs, other)
  • Amortisation and impairment losses for the period
  • Judgements made on the costs capitalised and amortisation method
  • Use of the practical expedient for incremental costs of obtaining

• Paragraphs cited in this workpaper (verification status shown from the register)

  References

• The treatment of the costs is documentedPass
• The contract cost asset is determinedPass
• The capitalisation entry is balancedPass
• The amortisation entry is balancedPass
• The impairment entry is balancedNot evaluated

Assets

80,000

Liabilities

100,000

Profit or loss

-20,000

OCI

0

Equity

-20,000

• Costs examined (nature, contract to which they relate, whether incremental, rechargeable to the customer)

  TextRequired

• Incremental costs of obtaining the contract that are expected to be recovered (sales commissions, for example)

  Number

  90,000

• Costs of obtaining that would have been incurred regardless of the contract (not rechargeable)

  Number

  35,000

• Costs to fulfil meeting the three capitalisation conditions (excluding costs within another standard)

  Number

  64,000

• Costs to be expensed (general and administrative costs not rechargeable, wasted resources, costs of obligations already satisfied)

  Number

  27,000

• Expected period of transfer of the related goods or services (years, specifically identified anticipated contracts included)

  Number

  Documented estimate of the entity, adjusted for a significant change in the expected timing (para. 99 and 100); the standard sets no period.

• Amount not amortised at the end of the transfer period (generally nil; enter 0)

  Number

• Carrying amount of the contract cost asset at the date of the test

  Number

• Remaining consideration expected for the related goods or services (without the constraint, credit risk considered)

  Number

• Costs that relate directly to providing those goods or services and have not yet been recognised as expenses

  Number

• Evidence obtained and referenced (category, document reference)

  EvidenceRequired

IFRS 15 §91IFRS 15 §92IFRS 15 §93IFRS 15 §94

• Criteria examined

  ChecklistRequired

  • Incremental cost (not incurred without the contract) expected to be recovered: recognised as an asset
  • Cost incurred whether or not the contract is obtained: expense, unless explicitly chargeable to the customer
  • Practical expedient: immediate expense if the amortisation period would be one year or less

IFRS 15 §95IFRS 15IFRS 15 §97IFRS 15

• Conditions examined

  Checklist

  • Costs within another standard (inventories, property, plant and equipment, intangible assets): accounted for under that standard
  • Costs relating directly to an existing or specifically anticipated contract (direct labour and materials, direct allocations, rechargeable costs, costs incurred only because of the contract)
  • Resources generated or enhanced that will be used in satisfying future obligations
  • Recovery expected
  • Expensed: general and administrative costs not rechargeable, wasted resources not reflected in the price, costs of obligations already satisfied, costs that cannot be attributed

IFRS 15 §99IFRS 15 §100IFRS 15IFRS 15 §102IFRS 15IFRS 15 §104

• Points examined

  ChecklistRequired

  • Systematic amortisation consistent with the transfer of the related goods or services (identified anticipated contracts included)
  • Significant change in the expected timing: prospective adjustment (change in estimate, IAS 8)
  • Impairment loss if the carrying amount exceeds the remaining consideration expected (without the constraint, credit risk included) less related costs not yet expensed
  • Impairment losses on related assets within other standards recognised first; then the cash-generating unit test (IAS 36)
  • Reversal if conditions have improved, capped at the carrying amount net of amortisation without impairment

IFRS 15 §91IFRS 15 §95IFRS 15 §99IFRS 15

• Contract cost asset (incremental costs of obtaining + costs to fulfil capitalised)

  CalculationRequired

  154,000

  Incremental costs of obtaining the contract that are expected to be recovered (sales commissions, for example) ; Costs to fulfil meeting the three capitalisation conditions (excluding costs within another standard)

• Annual amortisation (asset / expected period of transfer)

  Calculation

  Contract cost asset (incremental costs of obtaining + costs to fulfil capitalised) ; Amount not amortised at the end of the transfer period (generally nil; enter 0) ; Expected period of transfer of the related goods or services (years, specifically identified anticipated contracts included)

  Teaching assumption: straight-line allocation assumes an even transfer of the goods or services; the standard requires amortisation consistent with the pattern of transfer (para. 99), without imposing a method.

• Impairment loss (carrying amount − (remaining consideration − costs not yet expensed), if positive)

  Calculation

  0

  Carrying amount of the contract cost asset at the date of the test ; − Remaining consideration expected for the related goods or services (without the constraint, credit risk considered) ; Costs that relate directly to providing those goods or services and have not yet been recognised as expenses

• Capitalisation of contract costs

  EntryRequired

  Account	Debit	Credit
  Contract cost asset	154,000
  Payables		154,000

  Teaching assumption: the capitalised costs are owed to third parties (commission owed to the salesperson, for example); adapt the credit side if a cost is settled otherwise.

• Amortisation for the period

  Entry

  Debit Amortisation expense of contract costs ← Annual amortisation (asset / expected period of transfer) ; Credit Contract cost asset ← Annual amortisation (asset / expected period of transfer)

• Impairment loss

  Entry

  Debit Impairment loss on contract costs ← Impairment loss (carrying amount − (remaining consideration − costs not yet expensed), if positive) ; Credit Contract cost asset ← Impairment loss (carrying amount − (remaining consideration − costs not yet expensed), if positive)

IFRS 15 §91IFRS 15 §93IFRS 15 §94IFRS 15 §95IFRS 15IFRS 15

• Treatment retained for the costs examined

  JudgmentRequired

  Partly capitalised, the remainder expensed

  Recognised as a contract cost asset / Recognised as an expense when incurred / Immediate expense under the practical expedient (amortisation over one year or less) / Accounted for under another standard / Partly capitalised, the remainder expensed

• Rationale: facts relied on, analysis, alternative rejected

  TextRequired

• Impact by caption, derived from the entries above (the Notes line refers to the disclosures)

  TableRequired

IFRS 15 §127IFRS 15 §128IFRS 15 §129

• Items passed to the notes workpaper (“Revenue note”)

  ChecklistRequired

  • Closing balance of the asset by main category (costs of obtaining, set-up costs, other)
  • Amortisation and impairment losses for the period
  • Judgements made on the costs capitalised and amortisation method
  • Use of the practical expedient for incremental costs of obtaining

• Paragraphs cited in this workpaper (verification status shown from the register)

  References

• The treatment of the costs is documentedPass
• The contract cost asset is determinedPass
• The capitalisation entry is balancedPass
• The amortisation entry is balancedNot evaluated
• The impairment entry is balancedNot evaluated

Assets

154,000

Liabilities

154,000

Profit or loss

0

OCI

0

Equity

0