Sales commission related to Projects

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Hesham255
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Joined: 16 Jun 2019, 10:17

Sales commission related to Projects

Post by Hesham255 »

Hi All,
Is sales commissions related to projects to be considered as COGS or selling expenses?
Thanks
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Marek Muc
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Re: Sales commission related to Projects

Post by Marek Muc »

well, this is a typical selling expense, right?
Hesham255
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Joined: 16 Jun 2019, 10:17

Re: Sales commission related to Projects

Post by Hesham255 »

Yes, but related to getting the contract.
so should we charge on COGS or as a selling expense?
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Marek Muc
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Re: Sales commission related to Projects

Post by Marek Muc »

so what is your definition of COGS?
Hesham255
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Re: Sales commission related to Projects

Post by Hesham255 »

Well, in case of projects it will be cost of executing the projects. but I inquire about the acceptable practice for charging this commissions on projects, some companies are charging on cost of sales and others are charging on selling expenses.

what do you think?
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Marek Muc
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Re: Sales commission related to Projects

Post by Marek Muc »

It all depends what you're trying to show. If you want to present a separate line called "selling expenses" then I think that selling commissions belong there, otherwise what is the point of such a line? But IFRS do not require to present such a line in your P/L, so it really is up to you, the bottom line is that all users are aware what goes where.
Hesham255
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Joined: 16 Jun 2019, 10:17

Re: Sales commission related to Projects

Post by Hesham255 »

Thanks and appreciated. ;)
Akeem
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Re: Sales commission related to Projects

Post by Akeem »

Does the commission relates to cost incurred in obtaining the contract for the project? If yes, you may need to consider it as incremental cost that would be incurred ONLY if the contract is won.

IFRS 15 provides guidance to either capitalise the commission or expense it as incurred. To capitalise requires that the cost is recoverable by company through direct billing to the customer or huge margin on the contract. These costs are then amortise over the period sufficient for the contract to be delivered.

If the above is not the case, then you may consider as part of cost of sale (which is most likely) or operating expenses
Hesham255
Posts: 26
Joined: 16 Jun 2019, 10:17

Re: Sales commission related to Projects

Post by Hesham255 »

Hello Akeem,
Thanks for your clarification. this commission is a direct cost that is paid according to the progress of the contract and is recoverable through the margin. it is not paid all once at the beginning of the project but paid gradually.

We prefer to continue allocating its accrual on the S&D category (operating expenses). do you have another point of view?

Thanks
Akeem
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Joined: 12 Jul 2019, 20:42

Re: Sales commission related to Projects

Post by Akeem »

Dear Hesham

Great!

From your response, it is clear that it does not relate to cost of winning the project. Also, you stated that the commission is a direct cost, but I am not able to clarify if it is directly incurred for executing the project or selling the output of the project. In any case, the purpose of incurring the commission (whether for executing the project i.e. cost of fulfilling the project or for selling the output of the project) should provide appropriate guide in its classification

Regards
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