Revenue – ifrs 15 handbook

Example 12 – Amortisation: Specifically anticipated contracts
Company X enters into a contract with Customer Z to manage its payroll 
processing for five years. X incurs initial set-up costs of 500. These set-up 
activities do not transfer goods or services to Z. Based on historical experience 
and customer analysis, X expects Z to renew the contract for an additional 
five years, making a total of 10 years.
X recognises an asset of 500 for the set-up costs associated with the 
payroll processing and amortises that asset over the 10-year period – i.e. 
on a systematic basis consistent with the pattern of satisfaction of the 
performance obligation, and including specifically anticipated renewal period 
performance obligations.

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188 | Revenue – IFRS 15 handbook
Example 13 – Amortisation: Acquisition costs for month-to-month 
contracts
Telco E enters into a month-to-month wireless contract with Customer C that 
includes voice and data services. Dealer D is paid a commission of 20 at the time 
of sale. E does not pay commissions on renewals of month-to-month contracts. 
Based on historical experience and customer analysis, E expects C to renew the 
contract for 36 months (i.e. three years). 
E recognises an asset of 20 for the commission paid and amortises that asset 
over the three-year period – i.e. on a systematic basis consistent with the 
pattern of satisfaction of the performance obligation, and including specifically 
anticipated renewals.
Amortisation period may need to include anticipated contracts
Under the standard, a capitalised contract cost asset is amortised based on 
the transfer of goods or services to which the asset relates. In making this 
determination, the standard notes that those goods or services could be 
provided under an anticipated contract that the entity can specifically identify.
The standard does not prescribe how an entity should determine whether 
one or more anticipated contracts are specifically identifiable, so practice 
is likely to develop over time. Relevant factors to consider may include the 
entity’s history with that customer class and predictive evidence derived from 
substantially similar contracts. In addition, an entity may consider the available 
information about the market for its goods or services beyond the initial contract 
term – e.g. whether it expects the service still to be in demand when renewal 
would otherwise be anticipated. Judgement will be involved in determining 
the amortisation period of contract cost assets, but an entity should apply 
consistent estimates and judgements across similar contracts, based on 
relevant experience and other objective evidence.