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A software company signs a 3-year contract for ₹1 cr; a 1% commission (₹1 lakh) is paid only on successful signing. Under Ind AS 115:
AExpense the full ₹1 lakh in year 1 as a sales commission
BCapitalise but defer; charge entirely in year 3 when the contract ends
CCapitalise ₹1 lakh; amortise ₹33,333 each year as expense over the 3-year contract period
DTreat as a reduction in revenue, recognising ₹99 lakh over 3 years
Answer & Solution
Correct answer: C. Capitalise ₹1 lakh; amortise ₹33,333 each year as expense over the 3-year contract period
The ₹1 lakh is an INCREMENTAL contract-acquisition cost (paid only on signing) and recoverable through contract economics. Capitalise and amortise over the 3-year period the related services are provided. AS 9 would have expensed the full ₹1 lakh upfront — Ind AS 115 spreads it over the contract term. The 1-year practical expedient doesn't apply (amortisation period > 12 months).
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