ASC 340
Active
Other Assets and Deferred Costs
Governs other assets and deferred costs, including capitalized advertising costs and contract costs under ASC 606.
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Conceptual Framework Linkage
Deferring costs only where a genuine future benefit exists
A cost can be capitalised as an ASSET only where it is expected to give rise to PROBABLE future economic benefits the entity controls. ASC 340 houses the guidance for two specific categories of deferred cost that meet this threshold in narrowly defined circumstances – DIRECT-RESPONSE advertising, and costs related to CONTRACTS WITH CUSTOMERS – ensuring costs are matched against the revenue or benefit they genuinely relate to, rather than expensed immediately or deferred indiscriminately.
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Scope – a Residual Deferred-Cost Topic
A catch-all for deferred costs not addressed elsewhere
ASC 340 serves as a home for deferred cost and other asset guidance not more specifically addressed by other Topics – most significantly, direct-response advertising costs (340-20) and costs to obtain/fulfil contracts with customers (340-40, working directly alongside ASC 606's revenue recognition model).
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Capitalized Advertising Costs (340-20)
The general rule: expense as incurred, with one narrow exception
Advertising costs are, as a GENERAL rule, EXPENSED as incurred – the SAME default position IFRS takes under IAS 38. The one narrow exception ASC 340-20 carves out: DIRECT-RESPONSE advertising costs MAY be capitalised, but only if SPECIFIC, demanding criteria are met (Section 4).
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Direct-Response Advertising – the Capitalisation Criteria
A demanding, evidence-based test
Direct-response advertising costs may be capitalised only if: (a) the advertising's PRIMARY purpose is to elicit sales from customers who can be shown to have responded SPECIFICALLY to that advertising, and (b) the advertising results in PROBABLE future economic benefits, DEMONSTRATED through the entity's OWN HISTORICAL PATTERNS of response and purchase behaviour attributable to that specific type of advertising. This is a HIGH bar – it requires genuine, demonstrable evidence of a direct causal link between the specific advertisement and future sales, not merely a general belief that advertising works.
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Contract Costs Under ASC 606 (340-40)
Two categories, addressed alongside revenue recognition
ASC 340-40 addresses costs INCREMENTAL to obtaining a contract with a customer, and costs INCURRED to fulfil such a contract, working directly alongside ASC 606's revenue recognition model – the same overall structure IFRS 15 uses for its own contract cost guidance.
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Costs to Obtain a Contract
Capitalised if incremental and recoverable
Costs INCREMENTAL to obtaining a contract – most commonly SALES COMMISSIONS paid only if the contract is won – are CAPITALISED as an asset if the entity EXPECTS to RECOVER those costs, with a practical expedient permitting immediate expensing if the resulting amortisation period would be ONE YEAR OR LESS.
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Costs to Fulfil a Contract
A three-part capitalisation test
Costs to FULFIL a contract are capitalised only if ALL three conditions are met: the costs RELATE DIRECTLY to a specific, identifiable contract (or anticipated contract); the costs GENERATE OR ENHANCE resources that will be used to satisfy future performance obligations; and the costs are expected to be RECOVERED.
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Amortisation of Capitalised Contract Costs
Systematic, consistent with the transfer pattern
Capitalised contract costs are AMORTISED on a SYSTEMATIC basis consistent with the pattern of transfer of the goods or services to which the asset relates – and tested for IMPAIRMENT if the carrying amount exceeds the remaining consideration expected, less remaining costs to fulfil.
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Worked Example – Direct-Response Advertising Capitalisation
A catalogue mailing with demonstrated response history
Example: A mail-order catalogue campaign
A direct-mail retailer spends $500,000 producing and mailing a catalogue containing a unique response code, and has FIVE YEARS of documented historical data showing a consistent, measurable pattern of sales directly traceable to catalogues using this exact response-code methodology.
Given the demonstrated PRIMARY purpose (eliciting traceable customer response) and the ROBUST historical evidence of probable future economic benefit, the $500,000 QUALIFIES for capitalisation as a direct-response advertising asset – amortised over the period the resulting sales are expected to occur, rather than expensed immediately.
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Worked Example – Capitalising a Sales Commission
An incremental cost of obtaining a multi-year contract
Example: A commission on a 4-year service contract
A sales representative earns a $40,000 commission, paid ONLY because a 4-year service contract was successfully signed. The entity expects to recover this cost through the contract's margin.
Because the commission is INCREMENTAL (paid only upon winning the contract) and the amortisation period (4 years) EXCEEDS the one-year practical expedient threshold, the $40,000 is CAPITALISED and amortised over the 4-year contract term, consistent with the pattern of service delivery – rather than expensed immediately when paid.
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Disclosure Requirements
What ASC 340 requires
Accounting policy for direct-response advertising, including the criteria applied and amortisation methodJudgements made in determining the amount of costs capitalised to obtain or fulfil contracts with customersAmortisation method for capitalised contract costs, and the closing balance by major category
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Whether historical evidence sufficiently demonstrates a direct, traceable response pattern for advertising capitalisationWhether contract fulfilment costs genuinely relate directly to an identifiable contract and enhance future-obligation-satisfying resources
SIGNIFICANT ESTIMATES
Amortisation period for capitalised contract costs, consistent with the goods/services transfer patternRecoverability of capitalised costs against expected future consideration
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ASC 340 vs IFRS – the Advertising Divergence, and the IFRS 15 Convergence
Comparison – ASC 340 vs IAS 38 and IFRS 15
FeatureUS GAAP (ASC 340)IFRS equivalent
Direct-response advertising capitalisationPERMITTED, subject to demanding evidence-based criteriaIAS 38 PROHIBITS capitalising ANY advertising or promotional expenditure, without exception – a genuine, narrow but real divergence
Contract cost capitalisation (obtain/fulfil)ASC 606-aligned guidanceIFRS 15 contains SUBSTANTIVELY IDENTICAL contract cost guidance – the two revenue standards were developed as a single JOINT project, so this specific area is FULLY converged
This Topic illustrates both ends of the convergence spectrum within a single Topic: the advertising guidance is a genuine, standalone US divergence, while the contract cost guidance is one of the most precisely converged areas in the entire Codification, given ASC 606 and IFRS 15's shared joint-project origin.
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Statement Mapping
Where every ASC 340 event lands
EventStatement(s) affectedNotes
Direct-response advertising cost, criteria metBSCapitalised, amortised over the expected benefit period
Direct-response advertising cost, criteria NOT metISExpensed as incurred, the general default
Capitalised contract cost (obtain or fulfil)BSRecognised as an asset, amortised consistent with delivery pattern
Amortisation of capitalised contract costISSystematic basis matching goods/services transfer
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Related Topics
Cross-reference map
TopicConnection
ASC 606Supplies the revenue recognition model this Topic's contract cost guidance works directly alongside
ASC 350Governs intangible assets generally, distinct from this Topic's narrow deferred-cost focus
Quick-reference glossary preview
Direct-response advertising
Advertising designed to elicit sales from customers who can be shown to have responded specifically to that advertising, the narrow category eligible for capitalisation.
Incremental cost of obtaining a contract
A cost that would not have been incurred if the contract had not been obtained, such as a sales commission – capitalised if recoverable.
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Quick-Reference Glossary
Costs to fulfil a contract
Costs directly related to a specific contract that generate or enhance resources used to satisfy future performance obligations, capitalised if expected to be recovered.
One-year practical expedient
A simplification permitting immediate expensing of incremental contract acquisition costs if the resulting amortisation period would be one year or less.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows