US GAAP – ASC 340-40

The expense must be gradual. Only the additional expenditures incurred as a result of acquiring a contract should be capitalized.

The expense must be recoupable. On a contract-by-contract basis, management should evaluate the recoverability of incremental expenditures.

What does the ASC 340-40 Standard do for you?

The standard permits enterprises to choose expense incremental expenditures if the amortization term is one year or less as a practical expedient. Even though it is not specifically stated in the standard, some firms argue that it is regarded as an accounting policy choice if an entity chooses this technique. The same approach must be applied to all similar short-term contract acquisition expenses.

Consistent method to measure success

The recognized asset should be amortized systematically by the transfer of products or services to the relevant customer (ASC 340-40-35-1). The approach for establishing the amortization pattern should be compatible with determining the pattern of revenue recognition.

Careful analysis leads to the best economics

You must be aware that each contract and contract renewal should be carefully analyzed to determine the economic life of your contract. Although these assessments can differ, recognizing costs over the asset’s life provides the clearest picture of when revenue and costs should be recognized.