CAC Capitalized as Contract Cost (IFRS 15)
Capitalizing incremental commission costs to obtain a contract customer.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Contract Costs — CAC Asset | Asset (+) | 35.00 | - |
| Commission Expense (Deferred) | Expense (-) | - | 35.00 |
💡 Accountant's Note
Under IFRS 15, incremental costs to obtain a contract are capitalized if recoverable. For a 24-month postpaid contract, the JOD 35 dealer commission is capitalized and amortized over the 24-month contract term.
Practitioner & Systems Framework
💻 ERP Architecture
CAC capitalisation is managed in the contract cost module of the revenue accounting system (SAP RAR or Zuora Revenue). When a commission is paid for an eligible contract, the system creates a contract cost asset. The asset is amortised over the expected contract term (or expected benefit period if longer than the initial term). The contract cost asset balance is carried on the balance sheet and disclosed in the financial statements. The total portfolio of contract cost assets requires periodic recoverability assessment — particularly when average monthly revenue per user (ARPU) trends decline.
⚠️ Audit Flags
Auditors test the incremental cost criterion — only costs that would not have been incurred if the contract had not been obtained qualify (dealer commissions on new activations typically qualify; internal sales staff salaries do not). Test the recoverability assessment — if the expected future revenue from the contract is less than the unrecovered contract cost asset, the excess must be impaired. Confirm the amortisation period is the expected customer lifetime (which may extend beyond the initial minimum term if renewal is expected). Test the consistency of the practical expedient election (contracts of 12 months or less can be expensed immediately).
📄 Required Documentation
IFRS 15 contract cost capitalisation policy, incremental cost identification, contract cost asset register, amortisation schedule by cohort, recoverability assessment (comparing contract cost asset to future revenue), practical expedient election documentation, and financial statement disclosure.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.