Revenue – ifrs 15 handbook

Example 10 – Licence for right to access IP
Franchisor Y licenses the right to operate a store in a specified location to 
Franchisee F. The store bears Y’s trade name and F will have a right to sell Y’s 
products for 10 years. F pays an up-front fixed fee. 
The franchise contract also requires Y to maintain the brand through product 
improvements, marketing campaigns etc. 
The licence provides F access to the IP as it exists at any point in time in the 
licence period. This is because:
– Y is required to maintain the brand, which will significantly affect the IP by 
affecting F’s ability to obtain benefit from the brand;
– any action by Y may have a direct positive or negative effect on F; and
– these activities do not transfer a good or service to F.
Therefore, Y recognises the up-front fee over the 10-year franchise period.
9.4 
Timing and pattern of revenue recognition
IFRS 15.B56, B60–B61
The nature of an entity’s promise in granting a licence to a customer is to provide the 
customer with either a right to:
– access the entity’s IP; or
– use the entity’s IP.
A promise to provide the customer with a right to access the entity’s IP is satisfied 
over time because the customer simultaneously consumes and receives benefit 
from the entity’s performance of providing access to its IP as that performance 
occurs. The entity applies the general guidance for measuring progress towards the 
complete satisfaction of a performance obligation satisfied over time in selecting an 
appropriate measure of progress.
A promise to provide the customer with a right to use the entity’s IP is satisfied at 
a point in time. The entity applies the general guidance on performance obligations 
satisfied at a point in time to determine the point in time at which the licence 
transfers to the customer. However, revenue cannot be recognised before the 
beginning of the period during which the customer can use and benefit from the 
licence (i.e. before the start of the licence period).

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9 Licensing | 221
9.4 Timing and pattern of revenue recognition
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An entity may enter into a contract with a customer to renew or extend an existing 
licence to use the entity’s IP. If the renewal is agreed before the start of the 
renewal period, then a question arises about when to recognise revenue for the 
renewal. It appears that an entity should choose an accounting policy, to be applied 
consistently, to recognise revenue for the renewal when:
– 
the renewal is agreed:
on the basis that the renewal is regarded as a modification 
of an existing contract in which the licence has already been delivered; or
– 
the renewal period starts:
on the basis that this is the date from which the 
customer can use and benefit from the renewal.