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Under Ind AS 115, costs to FULFIL a contract that are NOT within the scope of another standard (e.g., Ind AS 2, 16, 38) are recognised as an asset only if ALL of the following are met EXCEPT:
AThe entity expects to recover the costs
BThe costs are administrative overhead allocated by management
CThe costs relate directly to the contract or to a specifically identified anticipated contract
DThe costs generate or enhance resources of the entity used to satisfy future POs
Answer & Solution
Correct answer: B. The costs are administrative overhead allocated by management
Para 95 — the three conditions for capitalising fulfilment costs are (a) direct relation to a contract or anticipated contract, (b) generation/enhancement of resources for future POs, (c) expected recovery. General and administrative costs NOT explicitly chargeable to the customer are expensed. Wasted materials/labour, costs of satisfied POs, and indistinguishable mixed costs are also expensed.
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