Licences Of Intellectual Property – FAQ | IFRS

Licences of intellectual property

The determination of whether a licence is distinct may require judgement. In some software arrangements, a software licence will be distinct because it is the only promise in the contract. In other arrangements, the customer will be able to benefit from the licence on its own or with readily available resources and it will be separately identifiable from the other goods or services in the contract (i.e., the other goods or services are also distinct). An example of a distinct licence is a software package that can be used on its own without customisation or modification and future upgrades are not necessary for the customer to retain continued functionality of the software for a reasonable period of time after the initial free maintenance period. Licences of intellectual property

Licences that an entity determines are not distinct are combined with other promised goods or services in the contract until a separate performance obligation is identified. In some contracts, the customer can benefit from the licence only with another good or service that is promised (explicitly or implicitly) in the contract. For example, a software licence may be embedded in a software-enabled tangible good and the software significantly influences the features and functionality of the tangible good. The customer cannot benefit from the software licence on its own, nor is it separable from the tangible good. Licences of intellectual property

Certain types of software, such as antivirus software, require frequent upgrades to keep the software current in order for it to be beneficial to the customer. Under IFRS 15, an entity may conclude that such software licences are not capable of being distinct because the customer cannot obtain the benefit from the software without also obtaining the subsequent upgrades. In these situations, the software licence, together with the unspecified upgrades, will form a single distinct performance obligation. Licences of intellectual property

Entities may also enter into arrangements with customers that involve significant production, modification or customisation of licenced software. Under IFRS 15, entities may conclude that the software licence is not distinct within the context of the contract. That is, the software licence and professional services are generally highly interrelated and significant integration and modification is required. Therefore, the licence and services together are a single performance obligation. Licences of intellectual property

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