Revenue – ifrs 15 handbook

Type of licence
Example
Licence that forms part of a 
tangible good and is integral to the 
functionality of the good
– Software embedded in the 
operating system of a car
Licence that the customer can 
benefit from only in conjunction with 
a related service
– Media content that the customer can 
access only via an online service
– Drug compound that requires 
proprietary research and 
development (R&D) services from 
the entity

---

© 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.
210 | Revenue – IFRS 15 handbook
Example 3 – IP licence in combined performance obligation
Company X enters into a five-year patent licence with Customer Z for a fixed 
fee. X also provides essential consulting services for two years. 
X determines that there are two promises in the contract – the patent licence 
and the consulting service component. However, the licence is not distinct from 
the service component in the contract because the services are essential and 
highly inter-related. 
Assume that the combined performance obligation is satisfied over time – e.g. 
because the patent is being created for Z and will have no alternative use to X, 
and X has an enforceable right to payment for performance completed to date. 
X considers the nature of the licence to determine the period over which the 
combined performance obligation will be satisfied and the appropriate measure 
of progress to apply. 
If the licence provides a 
right to use
the IP, then the combined performance 
obligation is satisfied over the two-year consulting service period. In contrast, 
if the licence provides a 
right to access
X’s IP, then the performance obligation 
will not be completely satisfied until the end of the licence term (and revenue 
will be recognised over the five-year licence period). In both cases, X has to 
determine an appropriate measure of progress to apply over the two- or five-
year performance period (e.g. time elapsed, costs incurred). For discussion of 
measuring progress, see 
Section 5.3
.