Capitalisation of project cost under IFRS

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CA Jithesh C (Querist)
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23 October 2010 Dear Experts,

Kindly give some IFRS supporting for the capitalisation of expenses such as planning consultant's salary which are purely attributable to a specific project which will be commissioned in near future. Kindly let me know which IFRS deals with this issue.

Thanks,
Jithesh

CA Shailesh Kumar Bhagat

CA Shailesh Kumar Bhagat (Expert)
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25 October 2010 You can capitalise salary charges as IEDC. After capitalisation , fair value of the assets is to be decided as per IFRS. At the initial level you can capitalize all the direct expenditure at project stage.

CA Jithesh C

CA Jithesh C (Querist)
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25 October 2010 Sir,

Could you please let me know which IFRS deals with this issue?

Thanks,
Jithesh

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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18 July 2024 Certainly! The International Financial Reporting Standards (IFRS) provide guidelines on the capitalization of certain expenses related to specific projects. The relevant standard that deals with this issue is **IFRS 15 - Revenue from Contracts with Customers**.

### IFRS 15 - Revenue from Contracts with Customers

IFRS 15 outlines the principles for recognizing revenue when control of goods or services transfers to a customer. While primarily focused on revenue recognition, IFRS 15 also addresses certain costs that are directly attributable to obtaining or fulfilling a contract. These costs can be capitalized if they meet specific criteria:

1. **Incremental Costs of Obtaining a Contract**: These are costs incurred to obtain a contract with a customer that would not have been incurred if the contract had not been obtained (e.g., sales commissions).

2. **Costs to Fulfill a Contract**: These are costs incurred to fulfill a contract with a customer that are directly attributable to the contract (e.g., direct labour costs).

Under IFRS 15, such costs can be capitalized if they meet the following criteria:
- They are directly attributable to the contract.
- They generate or enhance resources of the entity that will be used in satisfying performance obligations in the future.
- The costs are expected to be recovered.

### Planning Consultant's Salary Example

If the planning consultant's salary is directly attributable to a specific project that will be commissioned in the near future, and if it meets the criteria under IFRS 15 (e.g., directly related to fulfilling a contract with a customer), then it can potentially be capitalized as part of the costs to fulfill the contract. This would typically be in line with recognizing the costs as an asset (Work in Progress or similar) until the project is completed and revenue is recognized.

### Conclusion

IFRS 15 provides the framework for assessing whether certain costs related to contracts with customers can be capitalized. It emphasizes the importance of directly attributing costs to specific contracts and ensuring that these costs meet the criteria for recognition as assets.

For specific applications and interpretations of IFRS 15 to your particular situation, it is advisable to consult with a qualified accountant or financial advisor who can provide guidance tailored to your company's circumstances and compliance requirements with IFRS.

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