Revenue – ifrs 15 handbook

Type of 
contract
Description
Observations
IFRS 15.IE281–IE288
Example 56A and 56B – Life sciences
Contract to 
licence patent 
rights to an 
approved 
drug, which 
is a mature 
product, 
and to 
manufacture 
the drug for 
the customer
Two cases are provided 
to illustrate differences in 
identifying performance 
obligations depending 
on whether the 
manufacturing process 
is unique or specialised, 
whether the licence can 
be purchased separately 
or whether other entities 
can also manufacture the 
drug.
Manufacturing services that 
can be provided by another 
entity are an indication that the 
customer can benefit from a 
licence on its own.
These examples highlight the potential difficulty of determining whether 
services and IP are, in effect, inputs into a combined item and, therefore, not 
separately identifiable from each other. For example, an entity may license a 
video game and provide additional online hosting services that are not sold on 
a stand-alone basis. The entity will need to determine the degree to which the 
service is integral to the customer’s ability to derive benefit from its rights to 
the video game. The entire arrangement may be a single performance obligation 
or, alternatively, if the customer can derive substantial functionality from using 
the video game on a stand-alone basis without the additional online hosting 
services, then they may be separate performance obligations.
Customer’s option to purchase additional licences
In some contracts, an entity charges fees for additional copies or usage of 
software. The entity determines whether the contract is for a single licence 
or multiple licences. Depending on the facts of the arrangement, the contract 
might contain options to purchase additional software licences that will need 
to be evaluated to determine whether they convey a material right to the 
customer or a single licence with a usage-based fee. Judgement will be needed 
to determine whether an entity should apply the guidance on customer options 
or usage-based fees to these types of arrangements (see 
Example 4
 in this 
chapter).
Although this type of arrangement is common for software, the same 
considerations apply to similar arrangements for licences of other types of IP.

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9 Licensing | 213
9.2 Determining whether a licence is distinct
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