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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1 and best accounting revenue in a transfer of land

Here the questions raised is how to account for revenue in a transfer of land. Or to put it more formally how to account for revenue recognition in a real estate contract that includes the transfer of land (as per IFRS 15 Revenue from Contracts with Customers) as per the same 2018 IFRS Interpretations Committee Agenda Decision.

The case

An entity has obtained a piece of land to construct a building on. How should the entity account for the sale of the land and the building to be constructed on the land. revenue in a transfer of land

The contract includes the following features: revenue in a transfer of land

  • The entity and the customer enter
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Revenue over time or at a point in time

There are two ways of recognising revenue – recognise revenue over time or at a point in time. Revenue recognition over time is often referred to as the ‘Percentage of completion‘ method under the (superseded) IAS 11 Construction contracts. Revenue over time or at a point in time

The primary IFRS sections are IFRS 15 35 – 37 Over time and IFRS 15 38 At a point in time.Revenue over time or at a point in time

An entity determines at the inception of the contract whether it satisfies each performance obligation over time or at a point in time. If an entity does not satisfy a performance obligation over time, the performance obligation is satisfied at a point in time. [IFRS 15 32]

IFRS 15 Read more

Sale of hardware and installation services

Sale of hardware and installation services provides practical insight in revenue recognition of mixed contracts with customers under IFRS 15. Two very similar sales transactions/contracts but one with only one single performance obligation and the other with separate performance obligations.

Case 1 – separate performance obligations Sale of hardware and installation services

Vendor enters into a contract to provide hardware and installation services to Customer. Vendor always sells the hardware with the installation service, but the installation is not complex such that Customer could perform the installation on its own or use other third parties. Sale of hardware and installation services


Does the transaction consist of one or more performance obligations?

More than one – Vendor should account for the … Read more