Capitalise installation fees

Question

Hi All,

I am working for a telecom operator and we would like to assess the possibility to capitalise fiber internet installation services.

What is the customer has signed the contract to buy an Internet service we send a technician who takes the items from the inventory to install the modem on the customers premise which is then connected to a termination box outside of the customers house. The termination box is owned by us and already exists when the technician arrives.

This device is owned by us and the modem devices is then owned by the customer and expenses along with the services installation fees.

The question now is whether we can capitalise the installation Service fees.

Would a capitalization of the installation fee be possible under the existing device (IAS16) as it extends the revenue generation?

If the the contract costs are recorded as a cost to fulfill under IFRS 15 and subsequently amortised…would it be recorded as an depreciation and amortisation under the EBITDA or as CogS/ CoS?

Answer 1

Under International Accounting Standards (IAS) 16, an asset can be capitalized if it meets the criteria of being an identifiable non-current asset that is controlled by the company and has a probable future economic benefit. If the installation service fees meet these criteria, they could potentially be capitalized as part of the cost of the asset.

However, under IFRS 15, costs that are incurred to fulfill a contract (such as installation service fees) should be recognized as an expense when the service is performed. In this case, these costs would be recorded as cost of sales or cost of goods sold (CoGS/CoS) rather than as an asset to be depreciated.

The treatment of installation service fees in the EBITDA would depend on how the company has chosen to recognize these costs in its financial statements. If the costs are recorded as an expense when incurred, they would be included in the calculation of EBITDA as part of the CoGS/CoS. If the costs are capitalized and amortized, they would be included in the calculation of EBITDA as part of the depreciation and amortization expense.