PardnerMy words in respect to data-capture costs were not as precise as they should have been to accord with the language that accountants use. Accountants tend to refer to “costs” as follows:
- If a spend is debited to the balance sheet (e.g., an intangible asset), that is a “cost”, but it is a cost that does not show in the trading accounts (P&L accounts). It gets reflected in the trading accounts over time via depreciation/amotisation. In NEA's case, the data-capture spend is amortised over two years, so relative to the timing of the spend, there is a lag in the trading accounts.
- In business accounts, things like trading stock sold and the transport and storage thereof are conventionally called COGS (cost of goods sold), not expense of goods sold. Revenue less COGS equals Gross Profit.
Because the topic under discussion related to the trading accounts, when I referred to “data-capture costs”, I meant the usage of the word “costs” described in Point 2 above, which for NEA is data- capture amortisation. I could have written “data-capture amortisation”, but that does not make it patent that it is part of COGS, and hence part of the make-up of Gross Profit.
Cpago55I too am happy with the fact that the data-capture spend is amortised, particularly now that it is amortised over two years. Until 2020, the period was five years. Capture costs are amortised on a straight-line basis, and two years is a pragmatic rule of thumb to approximate usage.
Contract Acquisition Costs cover that part of a contract that exceeds one year, and that is to align it to the timing of revenue recognition. It substantially means that sales reps get their commission paid when the money becomes due for payment. Without that policy change, sales commission on multi-year contracts would have been $6.059 million higher in FY21. I am happy with that too.
I think mentioning three years straight-line amortisation in Note 12 under the heading “Amortisation” is a mistake in concept, but it may simply be a rule of thumb that works sufficiently well on average. The relevant words are, “
Amortisation is recognised in the consolidated statement of profit or loss on a straight-line basis over the estimated useful life of the intangible asset, from the date it is available for use. The estimated useful lives are as follows:- Capitalised capture costs: 2 years
- Contract acquisition costs: 3 years
- Development costs: 3-5 years
- Intellectual property: 5 years
- Patent, domains and trademark costs: 5-20 years.
Further down Note 12, under the heading “Contract acquisition costs”, you can read, “
Capitalised costs comprise sales commissions and associated on-costs that are incremental to obtaining new revenue contracts and are amortised on the expected duration of the contract with the customer.
