Issue link: https://construction.trimble.com/en/resources/i/1520032
Page | 39 Fulfi llment Costs > Certain costs to fulfi ll contracts are to be capitalized on the balance sheet. The contractor must fi rst determine whether the costs are addressed by other standards (i.e. inventory) and if so, apply that guidance. The contractor should amortize a capitalized contract fulfi llment cost to job costs over the period refl ecting the transfer of control to the customer which, in most cases, will be the expected duration of the contract for construction contract containing a single performance obligation. The general guidance for identifying fulfi llment costs are that the cost must: a. relate directly to a contract or anticipated contract or an anticipated contract that the entity can specifi cally identify (for example, costs relating to services to be provided under renewal of an existing contract or costs of designing an asset to be transferred under a specifi c contract that has not yet been approved), b. generate or enhance resources of the entity that will be used in satisfying (or in continuing to satisfy) performance obligations in the future, and c. are expected to be recovered. Costs to fulfi ll a contract that are incurred prior to the transfer of control to the customer (or that do not result in a transfer of a service or product to the customer) are subject to review for capitalization. Therefore, if a contract with a customer will transfer control at completion of a service, the costs incurred in fulfi lling the contract would be capitalized under this guidance if not required by other guidance. On the other hand, if the cost incurred results in or is part of the transfer of control to the customer, the cost is recognized as a contract cost in measuring performance in recognizing revenue. SPECIFIC EXAMPLES OF COSTS TO FULFILL A CONTRACT (Note that for each item, care should be taken to ensure such costs are allowable under the contract and expected to be recovered and whether there is transfer of control relative to the related performance obligation.) a. Engineering, design, mobilization, or other services performed on the basis of commitments or other such indications of interest. Mobilization costs are costs incurred by contractors to mobilize equipment and labor to and from a job site. b. Surety bonds and insurance costs incurred for a contract. c. Costs for production equipment and materials relating to specifi c anticipated contracts (for example, costs for the purchase of equipment, materials, or supplies). d. Costs incurred to acquire or produce goods in excess of contractual requirements in anticipation of follow-on orders for the same item. e. Startup or mobilization costs incurred for anticipated but unidentifi ed contracts. f. Direct labor (for example, salaries and wages of employees who provide the promised services directly to the customer). Generally, these costs are explicitly allowed in a contract and can be directly tied to a specifi c contract, thus meeting the criteria for capitalization.