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Accounting treatment for Bidding Commission

Our products are to enter one Super Market. The Market offer us exclusive contract for such product (effective for 2 years) but with a fixed amount of Bidding Commission. The commission is to be paid once the contract is signed by 50%, and the rest be paid end of 1st year. Shall we book the commission as net of Sales, COGS, or Expense? Can we amortize the commission over the contract period? Thanks!

Answers

Topic Expert
Keith Perry
Title: Director of Global Accounting
Company: Agrinos, Inc.
(Director of Global Accounting, Agrinos, Inc.) |

Kevin,

This sounds very much like slotting-fees, which I tend to put into marketing. I would amortize it over the 2-year life (using pre-paids and an amortization schedule).

I would definitely not put it into COGS, from your description.

Sales is iffy depending on how you track sales expense. I usually segregate Sales as sales force compensation; if this is paid to a third-party then it may be sales comp. If it is paid to the market, I'd be more comfortable putting it into the marketing budget. At that level, however, I'd ask my business operations how they want to see it in the P&L.

KP

Kevin Jiang
Title: Asia Controller
Company: GE
(Asia Controller, GE) |

Dear Keith & Patrick,
Thanks for your reply & help! After internal discussion, we deem it shall be expense to be amortized over the contract period as well.

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

Keith has this right. These sound like slotting fees and would actually be accounted for as a reduction in revenue. See ASC 605-50-45-2 through 45-4. Since it's not directly related to the sale of product, put in prepaids and amortize over the term of the contract.

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