This free, guided checker walks your finance team through the key decision points for IFRS 15 Costs to Obtain and Fulfil Contracts. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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Incremental costs such as sales commissions arise only if the contract would not have been obtained without incurring the cost per paragraph 92. Test each cost by asking whether it would still be payable if the deal failed - bid, travel, and due diligence costs usually would be, and are expensed under paragraph 93 unless explicitly chargeable to the customer. Include commission-linked payroll taxes and review tiered or cumulative commission plans carefully.
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Official guidance: IFRS issued standards
Sales commissions are the most common capitalized obtain cost; general marketing and bid proposal costs are typically expensed unless incremental. Bonuses based on cumulative revenue targets or discretionary pools require judgment - only the portion payable solely because a specific contract was obtained is incremental (IFRS 15.92). Fringe benefits and payroll taxes that move with the commission follow the commission's treatment.
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Official guidance: IFRS issued standards
Capitalize obtain costs only when recovery is expected through margin on the contract or other anticipated customer contracts per paragraph 91. Recovery can be direct, through the contract's own pricing, or indirect through renewals the entity can specifically identify. Evidence includes margin analyses, churn statistics, and renewal history; loss-making contracts should also trigger the IFRS 15.101 impairment lens.
Expense the obtain costs immediately; capitalization under IFRS 15.91 requires expected recovery.
Official guidance: IFRS issued standards
Capitalized obtain costs are amortized on a systematic basis consistent with transfer of goods or services to which the asset relates per paragraph 99, unless the one-year practical expedient in paragraph 94 is applied. The expedient is unavailable when the asset relates to specifically anticipated renewals extending beyond a year, a frequent trap for commissions on auto-renewing subscriptions. Apply the expedient consistently as a policy and disclose the election (IFRS 15.129).
Expense the obtain costs when recovery is not expected or the one-year practical expedient in IFRS 15.94 is elected.
Official guidance: IFRS issued standards
Fulfil costs include direct labour, materials, allocations, and other costs that relate directly to the contract and enhance resources under paragraph 95. Typical candidates are mobilization, set-up, migration, and pre-production engineering incurred before transfer of goods or services begins. Paragraph 97 lists the direct-cost categories, including explicitly chargeable costs and allocations such as contract supervision and depreciation of tools used to fulfil the contract.
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Official guidance: IFRS issued standards
IFRS 15.95 is residual: apply IAS 2, IAS 16, IAS 38, or another applicable standard first and use IFRS 15 only for fulfilment costs those standards do not address. Costs already expensed under another standard, such as abnormal waste under IAS 2, cannot be capitalized under IFRS 15 (IFRS 15.96). Map each fulfil cost category to its governing standard before testing paragraph 95.
Account for the costs under the applicable standard (IAS 2, IAS 16, or IAS 38) rather than IFRS 15 contract cost capitalization (IFRS 15.95-96).
Official guidance: IFRS issued standards
Costs must relate directly to the contract, enhance resources for future performance, and be expected to be recovered per paragraph 95. Paragraph 97 defines the direct-cost population, while paragraph 98 forces expensing of general and administrative costs, wasted materials and labour, and costs relating to satisfied performance obligations. The common misapplication is capitalizing costs of work already transferred to the customer because billing lags performance.
Expense the fulfil costs as incurred; the IFRS 15.95 criteria are cumulative and paragraph 98 costs are always expensed.
Official guidance: IFRS issued standards
Amortize capitalized obtain and fulfil costs on a systematic basis consistent with the pattern of revenue recognition per paragraph 99. Decide whether the asset relates only to the initial contract term or also to specifically anticipated renewals - commission structures that pay commensurate renewal commissions usually point to the initial term only. Update the amortization for significant changes in expected transfer timing as a change in estimate under IAS 8 (IFRS 15.100).
Define the amortization period and pattern linked to satisfaction of the related performance obligations (IFRS 15.99).
Official guidance: IFRS issued standards
An impairment loss arises when the carrying amount exceeds the remaining consideration the entity expects to receive less the costs that relate directly to providing the goods or services and have not yet been expensed (IFRS 15.101). Estimate the remaining consideration using transaction-price principles adjusted for the customer's credit risk (IFRS 15.102). Recognize impairments of related assets under other standards first, and reverse a contract-cost impairment when conditions improve (IFRS 15.103-104).
Perform the IFRS 15.101 contract cost impairment test before closing the period.
Official guidance: IFRS issued standards
Contract costs are classified as non-current assets when amortization extends beyond twelve months, with closing balances disclosed by main category of cost per paragraph 128(a). Contract cost assets differ from contract assets, which are conditional rights to consideration arising from performance (IFRS 15.105); commingling the two is a common presentation error. Split current and non-current portions using the expected amortization timing (IAS 1.60-61).
Reclassify capitalized contract costs out of receivables and contract assets into their own asset category (IFRS 15.128(a)).
Official guidance: IFRS issued standards
Amortization of capitalized obtain and fulfil costs is typically included in cost of sales or operating expense consistent with revenue pattern. IFRS 15 does not prescribe the income statement line, so the classification is a policy to apply consistently and explain. Reconcile amortization posted to the movement in the contract cost register so the paragraph 128 disclosures tie to the ledger.
Record period amortization aligned with the revenue recognition pattern of the related performance obligations (IFRS 15.99).
Official guidance: IFRS issued standards
Disclose judgments on capitalization, amortization methods, and closing balances of capitalized contract costs when material. IFRS 15.127 covers the judgments made in determining the costs capitalized and the amortization method; IFRS 15.128 requires closing balances by main category plus amortization and impairment for the period. Also disclose use of the paragraph 94 practical expedient where elected (IFRS 15.129).
Apply contract cost capitalization with systematic amortization, impairment testing, and the IFRS 15.127-128 disclosures (IFRS 15.91; IFRS 15.95; IFRS 15.99). Complete the IFRS 15.127-128 disclosure analysis before finalizing contract cost entries.
Official guidance: IFRS issued standards
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