B2W Flipbooks

Page | 42 Commissions paid to the salesperson $ 5,000 Total $15,000 Solution The contractor should only capitalize the $5,000 commission paid to its salesperson. The costs related to the delivery of the bid proposal should be immediately expensed because those costs would have been incurred even if the company did not ultimately obtain the contract. The contractor should amortize the recognized asset over the estimated life of the contract. AMORTIZATION OF CAPITALIZED COSTS ASC 340-40-35-1 states that capitalized costs should be amortized "on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates." The pattern in which the related revenue is recognized could be signifi cantly front-loaded, back-loaded, or seasonal, and costs should be amortized accordingly. If there is no evidence to suggest that a specifi c pattern of transfer can be expected, a straight-line amortization method may be appropriate. FINANCIAL STATEMENT MATTERS • Statement Presentation: Cost capitalized are presented as "Deferred Contract Costs" or "Capitalized Contract Costs" or "Unamortized Costs to Obtain Contracts" in the statement of fi nancial position. Entities must disclose information to the users of the fi nancial statement to support the right to receive consideration for the contract asset. • Current vs Long-Term: Contract assets will be expensed to contract costs on a "systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates." Classifi cation of the contract asset as current or noncurrent will be dependent on the timing of the expected recovery. • Impairment Analysis: The contract asset is subject to impairment analysis. Any impairment loss is presented separately from losses on contracts. Capitalized Costs to Obtain a Contract (continued) > A contractor incurs the following costs in order to obtain a construction project. The contractor expects to recover all the costs incurred in order to obtain the contract. Travel costs to deliver bid proposal $10,000 IMPLEMENTATION EXAMPLE: IDENTIFICATION OF CAPITALIZED COSTS

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