Revenue – ifrs 15 handbook

Example 9 – Set-up costs: Customised part for carmaker
Automotive Supplier S undertakes a large-scale project to produce a highly 
customised part for Carmaker L. The contract with L guarantees a minimum 
amount of parts to be ordered throughout the life of the project. Before 
producing the parts, S:
– develops a new enterprise resource planning (ERP) system that enables it to 
manage large-scale projects such as the one with L;
– trains its employees to use the new ERP system; and
– builds a technology platform that migrates and tests some of L’s databases 
that contain information necessary for the production of the parts. 
The ERP system is considered S’s intellectual property and can be used to 
manage future projects. The technology platform is not transferred to L and is 
not considered a separate performance obligation. Therefore, S concludes that 
these set-up costs relate primarily to activities to fulfil the contract, but do not 
transfer goods or services to L. S accounts for them as follows.
Type of cost
Accounting treatment
ERP system
Capitalised under the intangibles standard.
Training of employees
S determines that it has insufficient control over the 
economic benefits arising from its employees and 
therefore it cannot capitalise these costs.
Migration and testing 
technology platform
Capitalised as fulfilment costs because the costs:
– relate directly to the contract with L
– generate or enhance resources of S that will be 
used to satisfy performance obligations in the 
future – i.e. the production of parts
– are expected to be recovered over the life of the 
project
The capitalised software costs are subsequently accounted for under the 
intangibles standard. Costs capitalised under the revenue standard are subject 
to its amortisation and impairment requirements; see Sections 
7.3
and 
7.4
.

---

© 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
186 | Revenue – IFRS 15 handbook