The formulas
- Monthly amortization = capitalized cost / amortization period
- Period amortization = monthly x months amortized this period
How it works
ASC 340-40-25-1 capitalizes incremental costs of obtaining a contract the entity expects to recover. ASC 340-40-35-1 amortizes them on a systematic basis consistent with the transfer of the related goods or services, which can include anticipated renewals.
ASC 340-40-25-4 lets an entity expense the cost as incurred when the amortization period would be one year or less. The asset is also tested for impairment under ASC 340-40-35-3.
Illustrative figures only. Check the result against your firm's methodology before relying on it.
Common questions
Are renewal commissions considered?
When the commission paid on renewal is commensurate with the initial commission, the initial commission relates to the initial term and is amortized over that term.
Is straight-line required?
No. The pattern follows transfer of the related goods or services; straight-line fits ratable services.
Where is amortization presented?
ASC 340-40 does not name a line item. Present it with the expense line that matches the nature of the cost, selling expense for sales commissions.
Sources
Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.