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Reporting entities sometimes incur costs to obtain a contract that otherwise would not have been incurred. Reporting entities also may incur costs to fulfill a contract before a good or service is provided to a customer. The revenue standard provides guidance on costs to obtain and fulfill a contract that should be recognized as assets. Costs that are recognized as assets are amortized over the period that the related goods or services transfer to the customer, and are periodically reviewed for impairment.
Question RR 11-1 addresses whether a reporting entity can apply the portfolio approach to account for contract costs.
Question RR 11-1
Can a reporting entity apply the portfolio approach to account for contract costs?
PwC response
Yes. Management may apply the portfolio approach to account for costs related to contracts with similar characteristics, similar to other aspects of the revenue standard. We believe the portfolio approach is permitted even though the portfolio approach guidance is contained in ASC 606 and the contract cost guidance is contained in ASC 340-40. The portfolio approach is permitted if the reporting entity reasonably expects that the effect of applying the guidance to the portfolio would not differ materially from applying the guidance to each contract or performance obligation individually.
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