Revenue – ifrs 15 handbook

Judgement required for multiple-tier commissions
Some entities pay sales commissions on a multiple-tier system, in which the 
salesperson receives commission on all contracts executed with customers, 
and their direct supervisor receives commission based on the sales of the 
employees who report to them. An entity uses judgement when determining 
whether the supervisor’s commission is incremental to obtaining a specific 
contract or contracts. The incremental cost is the amount of acquisition cost 
that can be directly attributable to an identified contract or contracts.

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7 Contract costs | 177
7.1 Costs of obtaining a contract
| 
 
Additional application examples
Example 2 – Costs incurred to obtain a contract: Sales 
commissions to employees vs advertising
Telco E enters into a two-year wireless contract with Customer C that includes 
voice and data services. The contract is signed at one of E’s stores and Sales 
Employee S receives a commission of 30 when C signs the contract. E has 
also incurred costs related to a two-week advertising campaign. On signing the 
contract, C indicates that he came into the store in response to this advertising 
campaign. 
The commission paid to S is an incremental cost to obtain the contract with C 
because it is payable only on successfully obtaining the contract. Because the 
contract term is more than 12 months, the practical expedient does not apply. 
E therefore capitalises the sales commission of 30 as a cost of obtaining the 
contract, subject to recoverability. For discussion of the amortisation period, see 
Section 7.3
.
In contrast, the advertising costs, although they are associated with 
trying 
to 
obtain the contract, are not incremental costs of obtaining the contract. That 
is, the advertising costs would have been incurred even if no new customer 
contracts were acquired. Consequently, E expenses the advertising costs as 
they are incurred.