What happens to capitalised costs of obtaining and fulfilling a contract?

Capitalized costs of obtaining and fulfilling a contract are recognized as an asset on the balance sheet. According to the relevant accounting standards, such as IFRS 15 on revenue recognition, these costs should be amortized over the period in which the related revenue is recognized. This approach matches the costs to the revenue they help generate, ensuring that financial statements reflect the relationship between expenses and income accurately.

When revenue is recognized, a portion of the capitalized costs is transferred from the balance sheet to the income statement as an expense, reflecting the utilization of the asset as it contributes to revenue generation. This amortization process aligns expenses with the timing of revenue recognition, which provides a clearer picture of profitability during a given period.

The other options do not accurately reflect the treatment of these capitalized costs. Expensing them immediately does not align with the matching principle, where costs should correspond with the timing of revenue generation. Recording them as liabilities is incorrect since they represent future economic benefits rather than obligations. Finally, remaining at cost on the balance sheet indefinitely does not comply with the requirement to systematically allocate costs against revenue over time.