Revenue – ifrs 15 handbook

Total costs incurred
50
The commissions payable to sales employees and related payroll taxes are 
an incremental cost to obtain the contract, because they are payable only on 
successfully obtaining the contract. E therefore recognises an asset for the 
sales commissions of 10, subject to recoverability. 
By contrast, although the external legal fees and travel costs are incremental 
costs, they are costs associated with 
trying
to obtain the contract. Therefore, 
they are incurred even if the contract is not obtained. Consequently, E expenses 
the legal fees and travel costs as they are incurred.

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7 Contract costs | 175
7.1 Costs of obtaining a contract
| 
Practical expedient applies if the amortisation period is less than 
one year
IFRS 15.94
The practical expedient allowing entities not to capitalise the incremental costs 
to obtain a contract offers potential relief for an entity that enters into contracts 
of relatively short duration without a significant expectation of renewals. 
However, it may reduce comparability between entities.
Whether to use the practical expedient is an accounting policy choice, which 
can be made when the amortisation period associated with the asset that 
would otherwise have been recognised is one year or less. It is important to 
note that the amortisation period may be longer than the initial contract period 
because the entity is required to take into account expected renewals when 
determining the amortisation period. Determining the amortisation period can 
be particularly challenging when the entity also pays commissions for renewal 
contracts. For discussion of the amortisation period, see 
Section 7.3
.
Consistent with other accounting policy choices for which the relevant standard 
does not specify the level at which the accounting policy choice is applied, the 
practical expedient related to contract costs is applied on an entity-wide basis 
across all of its business units or segments.
The assessment of whether the practical expedient applies is made at the 
contract level. If a contract includes multiple performance obligations, and one 
or more of them will be satisfied beyond one year, then the practical expedient 
will not usually apply. This will be the case when the asset relates to all of the 
goods and services in the contract and more than one performance obligation is 
present, which means that the amortisation period of the capitalised costs will 
be longer than a year.
For discussion of the amortisation period, see 
Section 7.3
.