Revenue – ifrs 15 handbook

No correlation with the accounting for non-refundable up-front 
fees
The amortisation pattern for capitalised contract costs (i.e. including the term 
of specific anticipated contracts) and the revenue recognition pattern for non-
refundable up-front fees (see 
Section 10.6
) (i.e. the existing contract plus any 
renewals for which the initial payment of the up-front fee provides a material 
right to the customer) are not symmetrical under the standard. Therefore, there 
is no requirement under the standard for the recognition pattern of these two 
periods to align, even if contract costs and non-refundable up-front fees on the 
same contract are both deferred.
Presentation of amortisation costs may often depend on the 
nature of the entity and its industry
If an entity chooses to present its expenses by nature, then judgement will be 
required to determine the nature of the expenses arising from the amortisation 
of capitalised contract costs. The appropriate classification may often depend 
on the nature of the entity and the industry in which it operates. In all cases, an 
entity is subject to the general requirement to ensure that its presentation is not 
misleading and is relevant to an understanding of its financial statements.

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7 Contract costs | 191
7.3 Amortisation
| 
 
Additional application examples
Example 14 – Amortisation: Renewal commissions
Cloud Service Provider H agrees to provide hosting services for a one-year 
term to Customer C for 100,000. C has the option to renew the services at 
the end of each year for 100,000 per year. Based on its compensation plan, H 
pays a salesperson 5,000 for securing the initial contract and will pay 1,000 
to a salesperson who secures each renewal contract. H determines that the 
payments to salespeople represent incremental costs of obtaining contracts.
Securing an initial contract generally requires a significant amount of effort from 
the sales staff. Less effort is generally required to secure the renewal, which 
may only involve making a few phone calls or sending an email to confirm that 
the customer wants to renew.