Licensing of intellectual property

Licensing of intellectual property – in summary

The standard provides application guidance for the recognition of revenue attributable to a distinct licence of intellectual property (IP).

The general model is that if the licence is distinct from the other goods or services, then an entity assesses the nature of the licence to determine whether to recognise revenue allocated to the licence at a point in time or over time and to estimate variable consideration.

But with complex topics like licensing of intellectual property, there is also guidance separate from the general model for estimating variable consideration, on the recognition of sales- or usage-based royalties on licences of IP when the licence is the sole or predominant item to which the royalty relates.

What is intellectual property?

One could say almost everything could be intellectual property! Licensing of intellectual property

Here is a description (not a definition!) from the WIPO (World Intellectual Property Organisation):

Intellectual property (IP) refers to creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce.

IP is in general protected in law by, for example, patents, copyright and trademarks, which enable people to earn recognition or financial benefit from what they invent or create. A difficult balance exists between striking the interests of innovators and the wider public interest, businesses operating in IP have to foster an environment in which creativity and innovation can flourish.

Just take a look at the (public) discussion between open source software (Apache OpenOffice) and licensed software (Microsoft Office365).

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The step-by-step IAS 36 impairment of assets approach

When looking at the step-by-step IAS 36 impairment of assets approach it comes down to the following broadly organised steps: Assets in scope IAS 36

  • What?? – Determining the scope and structure of the impairment review,
  • If and when? – Determining if and when a quantitative impairment test is necessary, jump to this part here
  • How? – Understanding the mechanics of the impairment test and how to recognise or reverse any impairment loss, if necessary, jump to this part here.

The objective of IAS 36 Impairment of assets is to outline the procedures that an entity applies to ensure that its assets’ carrying values are not stated above their recoverable amounts (the amounts to be recovered through use or … Read more

Stand-alone selling price

The best evidence of standalone selling price is the price that the entity charges for the good or service in a separate transaction with a customer. However, in many cases goods or services are sold exclusively as a package with other goods or services rather than on an individual basis (e.g. nonrenewable customer support).

Licensing provides rights to a customer

LicensingLicensing establishes a customer’s rights to the intellectual property of an entity. Licenses of intellectual property may include, but are not limited to, licenses of any of the following:


  1. Software (other than software subject to a hosting arrangement) and technology
  2. Motion pictures, music, and other forms of media and entertainment
  3. Franchises Licensing
  4. Patents, trademarks, and copyrights. Licensing

In addition to a promise to grant a license (or licenses) to a customer, an entity may also promise to transfer other goods or services to the customer. Those promises may be explicitly stated in the contract or implied by an entity’s customary business practices, published policies, or specific statements. As with other types of contracts, when a contract with a customer includes Read more

So, what exactly is a joint venture?

what exactly is a joint venture? – Joint ventures are economic arrangements between two or more parties where key strategic decisions are made unanimously by the entities (the “venturers”) that share control. Key strategic decisions would include decisions that significantly impact sales and purchases of goods and services; research and development of new products; acquisitions and disposals; and the funding structure of the venture.

Joint ventures may appear in incorporated or unincorporated form (i.e. a joint venture need not result in the creation of a separate legal entity). “Strategic alliances” in which companies agree to work together to promote each other’s products or services may also be considered joint ventures.

How are joint ventures classified and accounted for? So, what

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Option for discounted software

Option for discounted software in general the entity shall allocate a discount proportionately to all performance obligations in the contract with the customer.

Distinct goods or services

Distinct goods or services is a cornerstone of IFRS 15 Revenue from contracts with customers. Distinct means the customer can benefit directly from the service

Valuation of Intangibles on Acquisition – How 2 use at your best advantage

Valuation of Intangibles on Acquisition

In Valuation of Intangibles on Acquisition a lot of practical examples are shown to be used as a tool of reference when challenging a valuation in real life.

THE CASE: Shockwave Corporation

  • Shockwave Corporation is the largest satellite radio provider in the country. Shockwave commenced operations five years ago when the government granted satellite spectrum licenses to four start-ups seeking to cultivate a then-burgeoning industry. Since that time, precipitated by the accelerating wireless data needs of telecommunication industry technology, the government has stated that it will not be licensing any new spectrum for satellite radio but may approve the sale or transfer of existing spectrum.
  • Shockwave generates its revenue from monthly subscriptions to consumers sourced
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Deferred tax assets Future tax profits

Deferred tax assets Future tax profits

The availability of future taxable profits – a problem in four parts Deferred tax assets Future tax profits

The best starting point for determining the availability of future taxable profits is a company’s own business planning cycle and resulting forecasts. Using the company’s forecasts to assess the value of assets with potentially significant impact is not a unique exercise for most telecom operators. Given the significant balances of goodwill, other intangible and tangible assets, impairment testing is an important element of their financial reporting process. Deferred tax assets Future tax profits

Impairment tests generally are based on approved budgets, which result from a robust budgeting process, and often external experts are involved throughout the Read more