Unspecified additional software products

Unspecified additional software products – As part of a contract with a customer, a software entity may license software today and promise to deliver unspecified additional software products in the future. For example, the software entity may agree to deliver all new products to be introduced in a family of products over the next two years. Unspecified additional software products may be treated as a separately identifiable component under current IFRS by some entities.

If so, the amount allocated to the component is recognised as revenue over the period that the products are provided. Other entities may account for the unspecified additional software products together with the related licence as a single component. The timing of revenue recognition, in those situations, may be affected by the licence.

Unspecified additional software productsAlternatively, since current IFRS does not provide detailed application guidance, some entities may look to US GAAP in developing their accounting policies. Under current US GAAP requirements1, unspecified additional software products are distinguished from PCS because the future components are products, rather than unspecified upgrades or enhancements. The software elements of these arrangements are often accounted for as subscriptions. Revenue is not allocated to any of the individual software products. Instead, all software product-related revenue from the arrangement is recognised rateably over the term of the arrangement, beginning with delivery of the first product.

Under IFRS 15, software entities will be required to determine whether the promise to deliver unspecified additional software products is a performance obligation separate from the licence that it delivers. Software entities will also need to evaluate whether the promise to deliver unspecified additional software products is a stand-ready obligation to provide future products on a when-and-if available basis or individual promises to deliver specified future products. See also IFRS 15 IE 49 – IE 58

Something else -   2 Strong Options to purchase additional goods or services

Remix rights

A technology entity may provide a customer with the right to choose and change which mix of software licenses and/or SaaS products in its portfolio to use over the contract term (i.e., remix rights) in addition to PCS and unspecified additional software products. Some of these contracts, however, include limits, such as a cap on the number of users who can simultaneously use the products.

These remix rights will typically be considered attributes of the related software licenses (or SaaS) and not separate promises since they do not create an obligation to transfer additional rights.

Entities must first evaluate whether the promises in the arrangement are separate performance obligations by evaluating whether each of the promises (e.g., each licensed software product, PCS, unspecified additional software products) is capable of being distinct and is distinct within the context of the contract.

Contracts with remix rights can take many forms (e.g., with terms that limit customer usage of the products or services included), and, if the entity determines that each of the promises is a separate performance obligation, allocating the transaction price to each of the performance obligations may require significant judgment and estimation.

Although the transaction price in arrangements with remix rights is allocated to each of the performance obligations on a relative standalone selling price basis, entities may be able to adjust the initial allocation to each performance obligation for expected customer usage (e.g., when they have reliable data about historical customer usage). Once the transaction price is allocated to the performance obligations, the allocation is not adjusted for subsequent changes to those estimates (e.g., for actual customer usage). Changes in the total transaction price generally are allocated to the separate performance obligations on the same basis as the initial allocation.

Something else -   Warranties in technology industry

For example, the portfolio of products and services provided to a customer as part of a contract with remix rights may include access to a software product that is used by customers less frequently than the other products or services in the portfolio, based on historical customer usage data. In this fact pattern, the entity may conclude it is most appropriate to reflect in the initial allocation the expectation that fewer customers will use this software product than the other products or services in the portfolio.

Material rights

Under some contracts, a technology entity provides a customer with the option to purchase additional goods or services or renew a contract at a stated price. These options are separate performance obligations only if they provide a material right that the customer would not receive without entering into the contract (e.g., a discount that exceeds the range of discounts the entity typically provides for those goods or services to that class of customer in that geographical area or market).

If an option is determined to be a separate performance obligation, a technology entity allocates a portion of the transaction price to the material right, based on its relative standalone selling price, and recognizes the allocated amount when it transfers those future goods or services or when the option expires. Evaluating whether an option provides a material right may be more complex when the standalone selling price of the good or service is highly variable, as illustrated below.

Unspecified additional software products

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Something else -   Disclosures in First IFRS Financial statements

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