Revenue – ifrs 15 handbook

Initial 
contract
Expected 
renewal 1
Expected 
renewal 2
Revenue
100,000
100,000
100,000
Costs of service
(30,000)
(30,000)
(30,000)
Gross margin (exclusive of 
commission costs)
70,000
70,000
70,000
Commission paid
(5,000)
(1,000)
(1,000)
H concludes that the renewal commission is not commensurate with the initial 
commission. This is because the commission paid initially is five times greater 
than the renewal commission, but the economic benefits − i.e. the margin that 
H expects to obtain from the renewal – equal those that it expects to obtain 
from the initial contract.
Therefore, the initial commission is a partial prepayment for the economic 
benefits that H expects to receive from subsequent renewal periods – i.e. the 
amortisation period includes renewal periods. This cost is therefore not subject 
to the practical expedient and is capitalised as an incremental cost of obtaining 
the contract, subject to recoverability.
Example 15 – Amortisation: Commission paid on renewals after the 
initial contract is obtained
Telco T pays its sales employees a commission of 30 for each new two-
year wireless contract entered into with a customer. T also pays 10 to sales 
employees each time a customer renews a contract for an additional two years. 
T previously concluded that both commissions qualify as a cost to obtain a 
contract and are capitalised when they are incurred.
Based on historical experience and customer analysis, T expects the customer 
to renew for an additional two years, making a total of four years. T further 
observes that the 10 renewal commission is not commensurate with the 30 
paid at inception of the contract.

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192 | Revenue – IFRS 15 handbook
T concludes that the first commission relates to a longer period than the initial 
two-year contract term. In this example, T determines that the commission 
should therefore be amortised over four years – i.e. on a systematic basis 
consistent with the pattern of satisfaction of the performance obligation and 
including the specifically anticipated renewal period. The renewal commission, 
however, is amortised over two years, being the period to which the 
commission relates. In this example, the amortisation expense would therefore 
be higher during the renewal period than during the initial contract period.