Question

A company incurred costs to fulfill a contract that has a four-year life. The costs are a direct result of the contract and would not have been incurred had the contract not existed. How should the costs to fulfill the contract be accounted for:

Answer 1

Recorded as an asset and amortized over four years.

Step-by-step explanation:

When a company incurs a long term cost on a project or in the purchase of an asset.it usually amortised it and recognises it over a number of years.

This is done to reduce the expense in just one year. The expense is spread out so it does not affect profits.

In this instance the cost is recorded as an asset and amortized over four years.