Revenue – ifrs 15 handbook

Presentation of amortisation costs in the statement of profit or 
loss
IAS 1.97, 99
If an entity presents its expenses by nature, then judgement is required 
to determine the nature of the expenses arising from the amortisation of 
capitalised contract costs. The appropriate classification may often depend on 
the nature of the entity and the industry in which it operates. 
Similarly, if an entity presents its expenses by function, then it applies 
judgement to allocate the amortisation costs to the appropriate function. 
There is no guidance in IFRS on how specific expenses are allocated to 
functions. An entity establishes its own definitions of functions – e.g. cost of 
sales, distribution and administrative activities – and applies these definitions 
consistently. It may be appropriate to disclose the definitions used.
In all cases, an entity is subject to the general requirements in the presentation 
standard to ensure that its presentation is not misleading and is relevant to an 
understanding of its financial statements.
For an illustration, see 
Examples 11A
and 
11B
in this chapter.

---

© 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
314 | Revenue – IFRS 15 handbook
Classification of cash flows related to contract costs depends on 
the nature of the activity
IAS 7.6, 11, 14(c), 16(a), IU 03-12, 07-12, 03-13
If an entity capitalises costs to obtain or fulfil a contract, then it needs to 
determine how to present the related cash outflows in the statement of cash 
flows. Cash flows are generally classified as operating, investing or financing 
based on the nature of the activity to which they relate, rather than on the 
classification of the related item in the statement of financial position.
Cash flows from operating activities are primarily derived from the principal 
revenue-producing activities of an entity. Some entities may, therefore, 
present 
all
cash flows related to their revenue-generating activity, including 
costs to obtain and costs to fulfil a contract with a customer, as part of 
operating activities.
Other entities may analyse costs to obtain a contract and costs to fulfil a 
contract differently. Although they link costs to fulfil a contract to the revenue-
generating activity, and therefore present the related cash flows as part of 
operating activities, they argue that costs to obtain a contract are more closely 
linked to their long-term business objective of obtaining and building a customer 
relationship, which may extend beyond the boundaries of an individual contract. 
This activity is of an investing nature and therefore the cash flows related to 
costs to obtain a contract are presented as part of investing activities. 
National securities regulators may have specific requirements on this matter.