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ACCA Strategic Professional · Strategic Business Reporting (International) · Revenue

Sirius Co capitalised sales commission of $60,000 on a 5-year contract and amortises it straight-line over the contract. At the end of year 2 the remaining carrying amount is $36,000. Sirius expects the remaining consideration, less directly related costs not yet recognised, to be $30,000. What impairment should Sirius recognise?

Sirius should recognise an impairment of $6,000. The capitalised contract cost has a carrying amount of $36,000, while the remaining expected consideration net of related costs is only $30,000, so the excess of $6,000 is written off immediately.

  1. A$0
  2. B$6,000Correct
  3. C$36,000
  4. D$30,000

Explanation

An asset from contract costs is impaired when its carrying amount exceeds the remaining consideration expected less the costs directly related to providing the goods or services. Carrying amount $36,000 minus $30,000 gives an impairment of $6,000. The $36,000 option would write off the full asset and $30,000 is the recoverable amount, not the loss.

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