Revenue Recognition For Licensing Agreements

Companies that license intellectual property follow the same five steps to record revenue as those that contract with customers for other types of goods or services. First, they analyze whether they have a contract with a customer that falls within the scope of Topic 606. In a second step, they assess whether the promised goods and services, including licensed intellectual property, are separate performance obligations. The evaluation of performance obligations in the Treaty is in line with the general guidelines. In some cases, the licence is a separate performance obligation, while in other cases it is combined with other goods and services. In this case, additional licences are established by the separate geographical provisions and the start date of the certificate. This is due to the fact that logo use rights in North America have a separate concept from logo use rights in Europe. Therefore, those two licences would be treated as two licences when applying the licensing directives. To give due consideration to IP licenses in accordance with ASC 606, companies must analyze: (1) whether the transaction constitutes a sale or license of intellectual property; (2) whether the investigation period is a performance obligation in its own right; (3) the type of license – functional or symbolic; and (4) the date of recognition based on the type of licence.

License agreements limit the conditions under which one party may use another party`s property. While the real estate in question can encompass a large number of objects, including real and personal property, licensing agreements are most often used for intellectual property, such as patents and trademarks, as well as copyrights for written materials and visual arts. The main challenges in this area are whether ip licensing constitutes a thing or service in its own right and, if so, whether the resulting performance obligation is fulfilled in time or at a given time. Theme 606 introduces a five-step process for revenue registration applicable to all companies that have contracts with customers within its scope. .

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