Capital commitments disclosure for store rollout and fit-out programs

Retailers running multi-store rollout or refurbishment programs routinely sign fit-out and equipment contracts well before the work is performed, and a common error is to record the full contracted amount as a liability and matching asset addition immediately on signing, rather than only recognizing amounts as goods/services are actually received. Overstating recognized capital expenditure and payables misleads users about the entity's current financial position and cash commitments, while understating or omitting the commitments note leaves users unaware of the significant future capital outflows the store rollout program implies - both matter significantly to lenders and investors assessing a retailer's expansion plans and liquidity headroom. Because rollout programs often span many stores at different completion stages simultaneously, keeping the boundary clear between 'received and recognized' versus 'signed and merely disclosed' requires disciplined contract-by-contract or milestone-by-milestone tracking rather than treating the whole program as one number.

Has the underlying goods or service actually been received (giving rise to a payable or accrued liability), or is the amount purely a future contractual commitment under a signed but unexecuted fit-out/supply contract? Are commitments denominated in foreign currency, requiring disclosure of the exchange rate basis used to translate them? Does committed rollout expenditure relate to any store whose business case has since become unviable, indicating a possible onerous contract rather than a routine capital commitment?

1. On signing a fit-out or equipment contract, assess whether any liability or asset arises immediately - generally, a fully executory contract (neither party has performed) does not give rise to recognition of a liability or an asset for the unperformed portion.
2. Recognize property, plant and equipment (leasehold improvements, store fixtures, equipment) and the corresponding payable only when the contractor/supplier has actually delivered goods or performed services, consistent with the general recognition criteria in IAS 16 (probable future economic benefit and cost measured reliably) applied at each milestone or delivery point rather than at contract signing.
3. Track each fit-out contract by store and by milestone (e.g., percentage completion certified, equipment delivered, installation completed) to determine the cumulative amount actually recognized as PPE/payable at each reporting date.
4. Separately quantify the portion of each signed contract not yet performed - this is the capital commitment to be disclosed, not recognized as a liability.
5. Aggregate capital commitments across all in-progress store rollout contracts for the commitments note, distinguishing (if material) between commitments contracted but not provided for and any other categories the entity discloses.
6. Reassess the commitment balance at each reporting date as contracts progress, are modified, or are cancelled, ensuring the disclosed commitment reflects only genuinely outstanding contractual obligations for future goods/services.

Measure recognized PPE additions at the cost of goods/services actually delivered or performed to date (invoiced or certified amounts for work completed), not at the full contract value. Measure the disclosed capital commitment at the contracted amount remaining to be performed - typically the total contract price less amounts already invoiced/recognized - stated at nominal contractual value (not discounted to present value, since this is a disclosure of a commitment rather than recognition of a liability). Where contracts are denominated in foreign currency, translate the outstanding commitment at the closing rate for disclosure purposes, consistent with how the entity translates other foreign-currency commitments. Update the commitment amount each reporting period as further work is invoiced/recognized (reducing the disclosed commitment) or as new contracts are signed (increasing it).

Disclose: the aggregate amount of contractual commitments for the acquisition of property, plant and equipment as at the reporting date; a description of the nature of the commitments (e.g., store fit-out, equipment purchase, rollout program covering a stated number of new stores); the split, where useful to users, between amounts expected to be settled within twelve months and thereafter; a clear statement that these commitment amounts are not recognized as liabilities in the statement of financial position; the amounts already recognized as PPE additions and payables for work performed to date, presented separately from the undisclosed-but-committed remainder to avoid double-counting or ambiguity between recognized and committed amounts.

• Recognizing the full signed contract value as a liability and PPE addition at signing instead of only as work is performed/invoiced
• omitting the capital commitments disclosure entirely because the amounts are '
• not yet a liability'
• and therefore assumed not to require any disclosure
• double-counting by disclosing the full original contract value as a commitment without deducting amounts already recognized/invoiced
• failing to update the commitment note each period as the rollout program progresses, leaving a stale or overstated commitment balance
• conflating capital commitments (contracts for PP&
• E) with operating commitments (e.g., ordinary purchase orders for inventory) in a single undifferentiated disclosure
• not reassessing commitments when a rollout contract is cancelled or a store opening is deferred or abandoned, leaving disclosed commitments that no longer reflect genuine obligations.