ASC 340-40-25-1 states that the cost of obtaining a contract should be recognized as an asset if the costs are incremental and are expected to be recovered. The key word is “incremental.” Certain items are not considered incremental costs and may not be considered as capitalized expenses.

For example, the cost of engineering and design work that is incurred prior to obtaining the contract may qualify as precontract costs but not as incremental costs. That is because the cost would be incurred whether or not the contract was obtained.

To help you stay in compliance with revenue recognition standards, save this Construction Issue Sheet.