ASC 340-40 deferrals

Some companies capitalize commission as an asset and recognize it as expense over a benefit period instead of expensing it when earned. The Deferred commission accounting module of Bitta Commission provides the mechanics for ASC 340-40 and IFRS 15 capitalization: it debits a deferred asset account instead of expense, builds a monthly straight-line schedule for each capitalized layer, and moves the due amounts to expense through governed accounting proposals. This page shows you how to set it up, recognize amortization and report on the asset.

Before you start

• Switch on Deferred commission accounting in Commission Feature Management. Switching it on creates the Active accounting policy CAPITALIZE, "Capitalize and amortize straight line over 12 months", and its policy setting with a 12-month benefit period. See Optional modules.
• Accounting posting must be set up. See Commission accruals.
• You need finance-wide access. Without it, Deferred Commission Assets stops with BAA-FINANCE-SCOPE.

Step 1: Set up accounts and the benefit period

1. Open the account mapping used by the capitalized components. In Role accounts, set the Deferred Asset Account No., which is debited instead of expense. Optionally set the Amortization Account No.; blank uses the commission expense account. Without a deferred asset account, posting stops with BAA-ACC-DEFERRED-ASSET-ACCOUNT.
2. Open Commission Accounting Policy Settings and review the line for the capitalize policy.

Field	What it does
Benefit Period Source	Policy Months amortizes over a fixed number of months. Plan Version Period amortizes over the plan version's effective period, which then needs both effective dates.
Benefit Period Months	The number of monthly recognition periods for Policy Months.
Closed Period Target	Where a posting goes when its original period is closed: Policy Default (the policy's closed period behavior), Next Open Period, Original Period, or Adjustment Period with the Adjustment Posting Date.

To use another benefit period, for example 36 months, create your own policy: on Commission Accounting Policies choose New accounting policy, choose Capitalize and Amortize in Recognition mode, enter Benefit period months (1 to 600), choose OK, then Validate and Activate the draft. Capitalize and Amortize is offered only while the module is on. To change an active policy, choose New version.

Step 2: Use the policy on plan components

On a draft plan component, choose the capitalize policy in Accounting Policy. The policy version must cover all of the component dates. If the module is off, the choice stops with BAA-FEATURE-OFF. See Commission plans.

What happens at posting

When a settlement's accounting proposal is built and posted:

• Capitalized commission debits the deferred asset account instead of commission expense. Commission under an expense policy is expensed as usual.
• The app creates a deferred commission layer with a monthly schedule. The benefit period starts on the capitalization posting date, each period is due on the last day of its month, and the last period carries any rounding remainder. Amortization starts only after the capitalization proposal is posted.

Open Deferred Commission Assets to see the layers:

Field	What it shows
Posting Date	When the commission was capitalized.
Participant ID, Component ID, Accounting Policy Code	Whose commission, from which component, under which policy.
Benefit Period Start, Benefit Period End, Benefit Period Months	The recognition window.
Original Asset Amount	The capitalized amount.
Recognized Amount, Remaining Amount	What posted amortization has moved to expense, and what is left.
Current Portion, Non-current Portion	The remaining balance scheduled within twelve months of the work date, and after.
G/L Account No.	The deferred asset account.

Choose Schedule lines to open Deferred Schedule Lines for the layer, and Capitalization proposal to open the proposal that created it.

Step 3: Recognize amortization

1. On Deferred Commission Assets, choose Recognize amortization, enter the Posting date to recognize through, and choose OK.

2. The app builds one accounting proposal, with the event scope AMORT- followed by the date, that moves every schedule line due on or before that date from the deferred asset to expense. The proposal opens. If nothing is due, a message says so.

3. Validate, approve and post the proposal like any other accounting proposal.

Schedule lines count as recognized only after the proposal posts. Lines in an open proposal are not picked up again, and the lines of a cancelled proposal are due again. A late run catches up every due line and keeps each line's scheduled date as evidence.

To automate step 1, choose Register Scanner Jobs on Commission Source Capture Setup. It creates the job queue entry "Bitta Commission deferred commission amortization" on hold. Each run builds the proposal through the work date; the proposal still needs validation, approval and posting.

Deferral entries opens Commission Deferral Entries, the append-only record of each recognized amount with its recognition date, schedule line, proposal and accounting entry.

Impair a layer

If your finance owner decides the remaining asset of a layer must be written off:

1. Select the layer and choose Impair layer. Enter the date, a reason and an Evidence reference, and choose OK.
2. The app appends an impairment row with the next modification sequence number. The original rows are not changed.
3. Run Recognize amortization through the impairment date and post the proposal to post the write-off.

Only a layer whose capitalization proposal is posted can be impaired, and only once. The date cannot precede the capitalization posting date, and an open amortization proposal for the layer must be posted or cancelled first.

Reporting

The Commission Cost Disclosure (ASC 340-40 / IFRS 15) report, Cost Disclosure on the Bitta Commission Role Center while the module is on, shows capitalized cost, amortization by period, the remaining asset and impairments. Choose Amortization From, Amortization To and As Of Date on its request page.

Accrual adjustments are not supported for Capitalize and Amortize policies (BAA-ACC-ADJUSTMENT-CAPITALIZE); settle the correction instead. See Commission reports and G/L reconciliation.

What's next

Pay participants in their own currency: Multi-currency.