# ASC 340-40-55: Other Assets and Deferred Costs — Contracts with Customers — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/340/40/#55-implementation-guidance-and-illustrations) 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. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-09T23:56:28.088Z to 2026-09-09T23:56:28.088Z Record version: sha256:0c7d0d82d79bfe9039f31c4d19378816ee608736751c35a040e31599a5c75016 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 340-40-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/340/40/#55-implementation-guidance-and-illustrations) SEC content: no #### Illustrations ##### [340-40-55-1](https://asc.understandingaccounting.org/asc/340/40/#340-40-55-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:28.088Z to 2026-09-09T23:56:28.088Z Record version: sha256:62a0b3351ed81f4e03572244b57aa95868ec0b6c03a4bb4b7792838ec1ba11f0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Examples 1 and 2 illustrate the guidance in paragraphs [340-40-25-1 through 25-4](https://asc.understandingaccounting.org/asc/340/40/#340-40-25-1) on incremental costs of obtaining a [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations."), paragraphs [340-40-25-5 through 25-8](https://asc.understandingaccounting.org/asc/340/40/#340-40-25-5) on costs to fulfill a contract, and paragraphs [340-40-35-1 through 35-6](https://asc.understandingaccounting.org/asc/340/40/#340-40-35-1) on amortization and impairment of contract costs. ##### [340-40-55-2](https://asc.understandingaccounting.org/asc/340/40/#340-40-55-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:28.088Z to 2026-09-09T23:56:28.088Z Record version: sha256:81ff1562deee0ec4e745c08ac77bf502253c118f844bfd757689e81af80821dd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity, a provider of consulting services, wins a competitive bid to provide consulting services to a new [customer](https://asc.understandingaccounting.org/glossary/c/#customer "A party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities in exchange for consideration."). The entity incurred the following costs to obtain the contract: - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-91AB95EB-3BDE-4114-A7CE-FF94C7613F4A-low.gif) External legal fees for due diligence " $15,000 " Travel costs to deliver proposal " 25,000 " Commissions to sales employees " 10,000 " Total costs incurred " $50,000 " ##### [340-40-55-3](https://asc.understandingaccounting.org/asc/340/40/#340-40-55-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:28.088Z to 2026-09-09T23:56:28.088Z Record version: sha256:1f0ff94796a12d209f79e99782c460ef132e1bf9dcbbfb53577501004e9b2c31 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In accordance with paragraph [340-40-25-1](https://asc.understandingaccounting.org/asc/340/40/#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](https://asc.understandingaccounting.org/asc/340/40/#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. ##### [340-40-55-4](https://asc.understandingaccounting.org/asc/340/40/#340-40-55-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:28.088Z to 2026-09-09T23:56:28.088Z Record version: sha256:3466bcae3544e9289d328917d25c19e68ffe740fbf901853f477a3c5450fcb73 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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](https://asc.understandingaccounting.org/asc/340/40/#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. ##### [340-40-55-5](https://asc.understandingaccounting.org/asc/340/40/#340-40-55-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:28.088Z to 2026-09-09T23:56:28.088Z Record version: sha256:80ea8b56fe89825d8900b828c2be430010f2a137d3f34b63690986fb65d6a5a3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [340-40-55-6](https://asc.understandingaccounting.org/asc/340/40/#340-40-55-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:28.088Z to 2026-09-09T23:56:28.088Z Record version: sha256:752490852101ceeb5692e2b43d07a212d4900bd00b58d20c8e1037d46341dbcc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In accordance with paragraph [340-40-25-1](https://asc.understandingaccounting.org/asc/340/40/#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](https://asc.understandingaccounting.org/asc/340/40/#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. ##### [340-40-55-7](https://asc.understandingaccounting.org/asc/340/40/#340-40-55-7) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:28.088Z to 2026-09-09T23:56:28.088Z Record version: sha256:b4bae4215f9319cdd1eb6337bed32f2470e32f83fc656676b7a180c29d45875a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The initial costs incurred to set up the technology platform are as follows: - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-FD4371B8-F07F-4E9E-BDFE-B91DAF1A5149-low.gif) Design services " $40,000 " Hardware " 120,000 " Software " 90,000 " Migration and testing of data center " 100,000 " Total costs " $350,000 " ##### [340-40-55-8](https://asc.understandingaccounting.org/asc/340/40/#340-40-55-8) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:28.088Z to 2026-09-09T23:56:28.088Z Record version: sha256:befbf965c13e17363a9516b6e5bbe3ff67fceb96f408a0d61780a1e867461542 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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](https://asc.understandingaccounting.org/asc/340/40/#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. ##### [340-40-55-9](https://asc.understandingaccounting.org/asc/340/40/#340-40-55-9) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:28.088Z to 2026-09-09T23:56:28.088Z Record version: sha256:db91e7f1c7480416804638cf4fd173c15876b8fabe8076c309119525faf4cfa1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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)](https://asc.understandingaccounting.org/asc/340/40/#340-40-25-5)). Therefore, the costs do not meet the criteria in paragraph [340-40-25-5](https://asc.understandingaccounting.org/asc/340/40/#340-40-25-5) and cannot be recognized as an asset using this Topic. In accordance with paragraph [340-40-25-8](https://asc.understandingaccounting.org/asc/340/40/#340-40-25-8), the entity recognizes the payroll expense for these two employees when incurred.