{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/340/40/#55-implementation-guidance-and-illustrations","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","topic":"340","topic_title":"Other Assets and Deferred Costs","subtopic":"340-40","subtopic_title":"Contracts with Customers","section":{"number":"55","label":"55 Implementation Guidance and Illustrations","anchor":"55-implementation-guidance-and-illustrations","is_sec":false,"groups":[{"block":null,"heading":"Illustrations","paragraphs":[{"citation":"340-40-55-1","para":"55-1","html":"
Examples 1 and 2 illustrate the guidance in paragraphs
340-40-25-1 through 25-4
on incremental costs of obtaining a contract, paragraphs
340-40-25-5 through 25-8
on costs to fulfill a contract, and paragraphs
340-40-35-1 through 35-6
on amortization and impairment of contract costs.
","snippet":"Examples 1 and 2 illustrate the guidance in paragraphs 340-40-25-1 through 25-4 on incremental costs of obtaining a contract, paragraphs 340-40-25-5 through 25-8 on costs to fulfill a contract, and paragraphs 340-40-35-1…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:62a0b3351ed81f4e03572244b57aa95868ec0b6c03a4bb4b7792838ec1ba11f0","downloaded_from":"2026-09-09T23:56:28.088Z","last_downloaded_at":"2026-09-09T23:56:28.088Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479452","source_sha256":"24f7b0cb5076c8d4c24b6f3718072fc19bccae1c7500eb9436486c6d3c20c8ec"}},{"citation":"340-40-55-2","para":"55-2","html":"
An entity, a provider of consulting services, wins a competitive bid to provide consulting services to a new customer. The entity incurred the following costs to obtain the contract:
","snippet":"An entity, a provider of consulting services, wins a competitive bid to provide consulting services to a new customer. The entity incurred the following costs to obtain the contract:","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:81ff1562deee0ec4e745c08ac77bf502253c118f844bfd757689e81af80821dd","downloaded_from":"2026-09-09T23:56:28.088Z","last_downloaded_at":"2026-09-09T23:56:28.088Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479452","source_sha256":"24f7b0cb5076c8d4c24b6f3718072fc19bccae1c7500eb9436486c6d3c20c8ec"}},{"citation":"340-40-55-3","para":"55-3","html":"
In accordance with paragraph 340-40-25-1, the entity recognizes an asset for the $10,000 incremental costs of obtaining the contract arising from the commissions to sales employees because the entity expects to recover those costs through future fees for the consulting services. The entity also pays discretionary annual bonuses to sales supervisors based on annual sales targets, overall profitability of the entity, and individual performance evaluations. In accordance with paragraph 340-40-25-1, the entity does not recognize an asset for the bonuses paid to sales supervisors because the bonuses are not incremental to obtaining a contract. The amounts are discretionary and are based on other factors, including the profitability of the entity and the individuals' performance. The bonuses are not directly attributable to identifiable contracts.
","snippet":"In accordance with paragraph 340-40-25-1, the entity recognizes an asset for the $10,000 incremental costs of obtaining the contract arising from the commissions to sales employees because the entity expects to recover t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1f0ff94796a12d209f79e99782c460ef132e1bf9dcbbfb53577501004e9b2c31","downloaded_from":"2026-09-09T23:56:28.088Z","last_downloaded_at":"2026-09-09T23:56:28.088Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479452","source_sha256":"24f7b0cb5076c8d4c24b6f3718072fc19bccae1c7500eb9436486c6d3c20c8ec"}},{"citation":"340-40-55-4","para":"55-4","html":"
The entity observes that the external legal fees and travel costs would have been incurred regardless of whether the contract was obtained. Therefore, in accordance with paragraph 340-40-25-3, those costs are recognized as expenses when incurred, unless they are within the scope of another Topic, in which case, the guidance in that Topic applies.
","snippet":"The entity observes that the external legal fees and travel costs would have been incurred regardless of whether the contract was obtained. Therefore, in accordance with paragraph 340-40-25-3, those costs are recognized …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3466bcae3544e9289d328917d25c19e68ffe740fbf901853f477a3c5450fcb73","downloaded_from":"2026-09-09T23:56:28.088Z","last_downloaded_at":"2026-09-09T23:56:28.088Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479452","source_sha256":"24f7b0cb5076c8d4c24b6f3718072fc19bccae1c7500eb9436486c6d3c20c8ec"}},{"citation":"340-40-55-5","para":"55-5","html":"
An entity enters into a service contract to manage a customer's information technology data center for five years. The contract is renewable for subsequent one-year periods. The average customer term is seven years. The entity pays an employee a $10,000 sales commission upon the customer signing the contract. Before providing the services, the entity designs and builds a technology platform for the entity's internal use that interfaces with the customer's systems. That platform is not transferred to the customer but will be used to deliver services to the customer.
","snippet":"An entity enters into a service contract to manage a customer's information technology data center for five years. The contract is renewable for subsequent one-year periods. The average customer term is seven years. The …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:80ea8b56fe89825d8900b828c2be430010f2a137d3f34b63690986fb65d6a5a3","downloaded_from":"2026-09-09T23:56:28.088Z","last_downloaded_at":"2026-09-09T23:56:28.088Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479452","source_sha256":"24f7b0cb5076c8d4c24b6f3718072fc19bccae1c7500eb9436486c6d3c20c8ec"}},{"citation":"340-40-55-6","para":"55-6","html":"
In accordance with paragraph 340-40-25-1, the entity recognizes an asset for the $10,000 incremental costs of obtaining the contract for the sales commission because the entity expects to recover those costs through future fees for the services to be provided. The entity amortizes the asset over seven years in accordance with paragraph 340-40-35-1 because the asset relates to the services transferred to the customer during the contract term of five years and the entity anticipates that the contract will be renewed for two subsequent one-year periods.
","snippet":"In accordance with paragraph 340-40-25-1, the entity recognizes an asset for the $10,000 incremental costs of obtaining the contract for the sales commission because the entity expects to recover those costs through futu…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:752490852101ceeb5692e2b43d07a212d4900bd00b58d20c8e1037d46341dbcc","downloaded_from":"2026-09-09T23:56:28.088Z","last_downloaded_at":"2026-09-09T23:56:28.088Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479452","source_sha256":"24f7b0cb5076c8d4c24b6f3718072fc19bccae1c7500eb9436486c6d3c20c8ec"}},{"citation":"340-40-55-7","para":"55-7","html":"
The initial costs incurred to set up the technology platform are as follows:
","snippet":"The initial costs incurred to set up the technology platform are as follows:","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b4bae4215f9319cdd1eb6337bed32f2470e32f83fc656676b7a180c29d45875a","downloaded_from":"2026-09-09T23:56:28.088Z","last_downloaded_at":"2026-09-09T23:56:28.088Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479452","source_sha256":"24f7b0cb5076c8d4c24b6f3718072fc19bccae1c7500eb9436486c6d3c20c8ec"}},{"citation":"340-40-55-8","para":"55-8","html":"
The initial setup costs relate primarily to activities to fulfill the contract but do not transfer goods or services to the customer. The entity accounts for the initial setup costs as follows:
  1. a
    Hardware costs—accounted for in accordance with Topic 360 on property, plant, and equipment
  2. b
    Software costs—accounted for in accordance with Subtopic 350-40 on internal-use software
  3. c
    Costs of the design, migration, and testing of the data center—assessed in accordance with paragraph 340-40-25-5 to determine whether an asset can be recognized for the costs to fulfill the contract. Any resulting asset would be amortized on a systematic basis over the seven-year period (that is, the five-year contract term and two anticipated one-year renewal periods) that the entity expects to provide services related to the data center.
","snippet":"The initial setup costs relate primarily to activities to fulfill the contract but do not transfer goods or services to the customer. The entity accounts for the initial setup costs as follows:\n(a) Hardware costs—account…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:befbf965c13e17363a9516b6e5bbe3ff67fceb96f408a0d61780a1e867461542","downloaded_from":"2026-09-09T23:56:28.088Z","last_downloaded_at":"2026-09-09T23:56:28.088Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479452","source_sha256":"24f7b0cb5076c8d4c24b6f3718072fc19bccae1c7500eb9436486c6d3c20c8ec"}},{"citation":"340-40-55-9","para":"55-9","html":"
In addition to the initial costs to set up the technology platform, the entity also assigns two employees who are primarily responsible for providing the service to the customer. Although the costs for these two employees are incurred as part of providing the service to the customer, the entity concludes that the costs do not generate or enhance resources of the entity (see paragraph 340-40-25-5(b)). Therefore, the costs do not meet the criteria in paragraph 340-40-25-5 and cannot be recognized as an asset using this Topic. In accordance with paragraph 340-40-25-8, the entity recognizes the payroll expense for these two employees when incurred.
","snippet":"In addition to the initial costs to set up the technology platform, the entity also assigns two employees who are primarily responsible for providing the service to the customer. Although the costs for these two employee…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:db91e7f1c7480416804638cf4fd173c15876b8fabe8076c309119525faf4cfa1","downloaded_from":"2026-09-09T23:56:28.088Z","last_downloaded_at":"2026-09-09T23:56:28.088Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479452","source_sha256":"24f7b0cb5076c8d4c24b6f3718072fc19bccae1c7500eb9436486c6d3c20c8ec"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3b6d60939f489b6e91aa6438b965ea7605516424bcc63f9156f398cc8f976597","downloaded_from":"2026-09-09T23:56:28.088Z","last_downloaded_at":"2026-09-09T23:56:28.088Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479452","source_sha256":"24f7b0cb5076c8d4c24b6f3718072fc19bccae1c7500eb9436486c6d3c20c8ec"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0c7d0d82d79bfe9039f31c4d19378816ee608736751c35a040e31599a5c75016","downloaded_from":"2026-09-09T23:56:28.088Z","last_downloaded_at":"2026-09-09T23:56:28.088Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479452","source_sha256":"24f7b0cb5076c8d4c24b6f3718072fc19bccae1c7500eb9436486c6d3c20c8ec"}},"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0c7d0d82d79bfe9039f31c4d19378816ee608736751c35a040e31599a5c75016","downloaded_from":"2026-09-09T23:56:28.088Z","last_downloaded_at":"2026-09-09T23:56:28.088Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479452","source_sha256":"24f7b0cb5076c8d4c24b6f3718072fc19bccae1c7500eb9436486c6d3c20c8ec"}}