Revenue – ifrs 15 handbook

Variable royalty rates – Right-to-use licence
An entity recognises revenue from a sales- or usage-based royalty when (or as) 
the customer’s subsequent sales or usage occurs unless this method would 
accelerate the recognition ahead of the entity’s performance in completing the 
performance obligations. Therefore, when the royalty relates to a right-to-use 
licence, it is generally recognised as and when sales or usage occur because 
performance is complete.
One exception to this approach is when a declining rate is applied on a 
retrospective basis – e.g. customers receive a refund or credit on previous 
payments when the customer reaches a lower royalty rate. In these cases, the 
entity estimates the ultimate royalty rate that it expects to be entitled to and 
applies that to the sales or usage. The entity updates that estimate over the 
licence term.

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9 Licensing | 229
9.6 Sales- or usage-based royalties
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Variable royalty rates – Right-to-access licence
An entity recognises revenue from a sales- or usage-based royalty when (or 
as) the customer’s subsequent sales or usage occur unless this method would 
accelerate the recognition ahead of the entity’s performance in completing 
the performance obligations. Therefore, when the royalty decreases over the 
licence term an entity evaluates whether a portion of the royalty rate needs to 
be deferred to ensure that the entity does not recognise revenue ahead of its 
performance. Conversely, when the royalty rate increases over the licence term 
the entity generally recognises revenue at the current royalty rate because an 
entity cannot recognise revenue before sales or usage occurs.
Allocating sales- or usage-based royalties to multiple