Revenue – ifrs 15 handbook

Example 5 – Technology company: Ongoing support that is not 
distinct
Company V grants Customer C a three-year licence for anti-virus software. 
Under the contract, V promises to provide C with when-and-if-available updates 
to that software during the licence period. The updates are critical to the 
continued use of the anti-virus software. 
V concludes that the licence and the updates are capable of being distinct 
because the anti-virus software can still deliver its original functionality during 
the licence period without the updates. C can also benefit from the updates 
together with the licence transferred when the contract is signed. 
However, V concludes that the licence and the updates are not separately 
identifiable because the software and the service are inputs into a combined 
item in the contract − i.e. the nature of V’s promise is to provide continuous 
anti-virus protection for the term of the contract. Therefore, V accounts for the 
licence and the updates as a single performance obligation.
Example 6 – Technology company: Software licence and 
customisation services
Company M licenses Product P – asset management system software − to 
customers. P functions as designed without any customisation or modification 
and can be implemented without M’s help in its standard form.
M enters into a contract with Bank B to grant a licence of P and to provide 
customisation services. This includes modifying certain off-the-shelf settings 
− e.g. adding an option to access and value a portfolio in multiple foreign 
currencies. The customisation of P is expected to take a long time and will 
significantly affect B’s ability to use P. 
M evaluates the promised goods and services in the contract to determine the 
number of separate performance obligations.
M determines that the software licence and the customisation services are 
capable of being distinct, because:
– B could derive benefit from the licence for P on its own or with readily 
available implementation services; and 
– B can benefit from the customisation services together with the licence to P 
that is transferred at contract inception.

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2 Step 2 – Identify the performance obligations in the contract | 33
2.1 Distinct goods or services
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However, M determines that the licence and the customisation services are 
not separately identifiable – i.e. there is a single performance obligation. This is 
because: 
– the customisation services significantly customise P; and
– P, in its off-the-shelf form, and the customisation services are inputs into 
the combined output that the customer has contracted to receive − i.e. the 
customised software.