Revenue – ifrs 15 handbook

Capitalising commission when associated liability is accrued
In some cases, an additional commission may be payable, or the original 
commission amount adjusted, at a future date. Examples include commissions:
– paid for renewal of the contract;
– earned on contract modifications;
– contingent on future events;
– subject to claw-back; and
– that are tiered, subject to a threshold.

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176 | Revenue – IFRS 15 handbook
In these cases, an entity considers the enforceable rights and obligations 
created by the arrangement to determine when the liability is accrued and 
whether to capitalise a commission, and in what amount. Consider these 
examples.
– If an entity pays commission of 100 on commencement of a contract with 
a non-cancellable two-year term, and agrees to pay further commission of 
100 if the customer renews the contract at the end of two years, then the 
entity generally capitalises only the initial commission of 100 on contract 
commencement. The entity capitalises the second commission of 100 only 
when the customer renews the contract. This is because the contract creates 
enforceable rights and obligations for both parties only for the initial contract 
period of two years and the entity does not accrue the second commission 
payment until it has a present obligation.
– If an entity pays commission of 100 on commencement of a contract with 
a non-cancellable two-year term and agrees to pay additional commission 
of 100 on the first anniversary of the contract, then the entity generally 
capitalises 200 on contract commencement. This is because the contract 
creates enforceable rights and obligations for both parties for the contract 
period of two years. Also, the entity accrues the second payment because 
it has a present obligation and its payment depends only on the passage 
of time. 
In more complex scenarios, an entity focuses on whether its obligation to pay a 
commission meets the definition of a liability. This will be particularly important 
when considering commission structures that include thresholds – e.g. a 
commission amount is payable only if cumulative sales within a given period 
exceed a specified amount or the commission rate varies with cumulative sales. 
In general, if an entity recognises a liability to pay commission that qualifies for 
recognition as the cost of obtaining a contract, then the entity recognises an 
asset at the same time.