Revenue – ifrs 15 handbook

IP that forms part of tangible asset
IP may be included in tangible products such as DVDs, hard-copy books or 
CDs. The first-sale doctrine, which exists in US copyright law, provides that 
the individual who purchases a copyrighted work from the copyright holder 
is the owner of that individual copy and receives the right to sell or lease that 
particular copy.
Generally, when IP is embedded in the tangible product the licensing guidance 
does not apply to the sale of goods subject to the first-sale doctrine. Instead, an 
entity applies the general guidance in the revenue standard to determine the 
transaction price and when control of the goods transfers to the customer. Non-
US entities would consider similar laws and concepts to the first-sale doctrine.
Distinguishing between a licence and service
Even if a contract states that the arrangement is a licence, the nature of the 
promise to the customer may be that of providing a service. The evaluation of 
whether the arrangement is a licence or a service requires judgement based on 
the identification of the performance obligations in the arrangement – i.e. Step 2 
of the model (see 
Chapter 2
). The guidance on determining whether a licence is 
distinct (see 
Section 9.2
) also applies in the determination.

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9 Licensing | 209
9.2 Determining whether a licence is distinct
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9.2 
Determining whether a licence is distinct
IFRS 15.B53
A contract to transfer a licence to a customer may include promises to deliver 
other goods or services in addition to the promised licence. These promises may 
be specified in the contract or implied by an entity’s customary business practices.
Consistent with other types of contracts, an entity applies Step 2 of the model 
(see 
Chapter 2
) to identify each of the performance obligations in a contract 
that includes a promise to grant a licence in addition to other promised goods or 
services. This includes an assessment of whether the:
– customer can benefit from the licence on its own or together with other 
resources that are readily available; and 
– licence is separately identifiable from other goods or services in the contract.
IFRS 15.BC414X
The basis for conclusions states that: 
– in some cases it may be necessary to consider the nature of the entity’s 
promise in granting a licence, even when the licence is not distinct; and 
– an entity considers the nature of its promise in granting a licence that is the 
primary or dominant component of a combined performance obligation.
IFRS 15.B54–B55
If the licence is not distinct, then the entity recognises revenue for the single 
performance obligation when or as the combined goods or services are transferred 
to the customer. It generally applies Step 5 of the revenue model (see 
Chapter 5
) 
to determine whether the performance obligation containing the licence is 
satisfied over time or at a point in time.
IFRS 15.B54
The following are examples of licences that are not distinct.