Discussion on the Feasibility of Capitalizing Fiber Optic Internet Installation Service Costs
A telecommunications operator intends to evaluate the possibility of capitalizing fiber optic internet installation service costs. The article analyzes whether installation fees meet the asset recognition criteria under IAS 16 when the customer has signed a contract and the equipment is provided and installed by the operator, and if treated as contract fulfillment costs under IFRS 15, whether the amortization should be included in EBITDA or cost of sales.
Dear colleagues:
I am currently working for a telecommunications operator, and we would like to evaluate the possibility of capitalizing the costs of fiber internet installation services. The specific business scenario is as follows: After the customer has signed a contract to purchase internet services, we dispatch technicians to take equipment from inventory, install a modem at the customer's residence, and connect it to the termination box located outside the customer's premises. This termination box is owned by us and already exists when the technician arrives.
This equipment (the modem) is owned by us, but subsequently, ownership of the equipment transfers to the customer, and the related expenditure is handled together with the installation service fee. The question now is: Can we capitalize the installation service costs?
Under existing equipment (IAS 16), can installation costs be capitalized because they extend the period of revenue generation? If contract costs are recognized as fulfillment costs under IFRS 15 and subsequently amortized... then should that amortization be presented in EBITDA as depreciation and amortization, or as cost of sales (CogS/CoS)?