Last update 03/02/2020
Part of the main section Recognition – Contract modifications
Examples 54–61 illustrate the requirements in paragraphs 22–30 of IFRS 15 for identifying performance obligations and paragraphs B52–B63 of IFRS 15 on licensing. These examples also illustrate other requirements as follows, paragraphs 39–45 of IFRS 15 on measuring progress towards complete satisfaction of a performance obligation (Example 58).
Example 58—Access to intellectual property
IE297 An entity, a creator of comic strips, licenses the use of the images and names of its comic strip characters in three of its comic strips to a customer for a four-year term. There are main characters involved in each of the comic strips. However, newly created characters appear regularly and the images of the characters evolve over time. The customer, an operator of cruise ships, can use the entity’s characters in various ways, such as in shows or parades, within reasonable guidelines. The contract requires the customer to use the latest images of the characters.
IE298 In exchange for granting the licence, the entity receives a fixed payment of CU1 million in each year of the four-year term.
IE299 In accordance with paragraph 27 of IFRS 15, the entity assesses the goods and services promised to the customer to determine which goods and services are distinct. The entity concludes that it has no other performance obligations other than the promise to grant a licence. That is, the additional activities associated with the licence do not directly transfer a good or service to the customer because they are part of the entity’s promise to grant a licence and, in effect, change the intellectual property to which the customer has rights.
IE300 The entity assesses the nature of the entity’s promise to transfer the licence in accordance with paragraph B58 of IFRS 15. In assessing the criteria the entity considers the following:
- the customer reasonably expects (arising from the entity’s customary business practices) that the entity will undertake activities that will affect the intellectual property to which the customer has rights (ie the characters). Those activities include development of the characters and the publishing of a weekly comic strip that includes the characters.
- the rights granted by the licence directly expose the customer to any positive or negative effects of the entity’s activities because the contract requires the customer to use the latest characters.
- even though the customer may benefit from those activities through the rights granted by the licence, they do not transfer a good or service to the customer as those activities occur.
IE301 Consequently, the entity concludes that the criteria in paragraph B58 of IFRS 15 are met and that the nature of the entity’s promise to transfer the licence is to provide the customer with access to the entity’s intellectual property as it exists throughout the licence period. Consequently, the entity accounts for the promised licence as a performance obligation satisfied over time (ie the criterion in paragraph 35(a) of IFRS 15 is met).
IE302 The entity applies paragraphs 39–45 of IFRS 15 to identify the method that best depicts its performance in the licence. Because the contract provides the customer with unlimited use of the licensed characters for a fixed term, the entity determines that a time-based method would be the most appropriate measure of progress towards complete satisfaction of the performance obligation.
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