Revenue – ifrs 15 handbook

parts. The agreement between G and S does not specify a separate price for 
E&D services, but the price of each part includes a mark-up to compensate S 
for those services. The agreement does not state a minimum quantity of parts 
to be ordered by G, but it contains a termination clause under which S will be 
reimbursed for any costs incurred for the E&D services if G terminates the 
agreement. Therefore, on 1 January S concludes that a contract exists for the 
E&D activities but not for the production of parts.
On 1 April, S completes the E&D activities and recognises revenue for the 
services provided.
On 1 December, G orders the first batch of parts.
S assesses whether the purchase order for the parts should be treated as a 
modification of the contract to provide E&D services.
S notes that the consideration for the parts does not reflect their stand-alone 
selling price, because the price of the parts is meant to compensate S for 
the lower margin on the E&D services. Therefore, S concludes that it may be 
appropriate to consider the modification guidance.
S concludes that the parts ordered are distinct from the E&D activities, 
because, among other considerations, they are produced after the E&D 
activities are completed and their production cannot affect the way the E&D 
activities are performed.
Under the modification guidance, S would account for G’s purchase order 
together with any remaining performance obligations. However, S notes 
that no remaining obligations are left under the E&D contract – i.e. it is 
completely satisfied. Therefore, it does not allocate any consideration payable 
for the parts to the E&D services, and accounts for the purchase order as a 
separate contract.

---

© 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
206 | Revenue – IFRS 15 handbook
9 Licensing
Overview
The standard provides application guidance for the recognition of revenue 
attributable to a distinct licence of intellectual property (IP). 
If the licence is distinct from the other goods or services, then an entity 
assesses its nature to determine whether to recognise revenue allocated to the 
licence at a point in time or over time. 
The standard also contains 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.
The following flowchart summarises how the standard applies to licences of IP.
No
Yes