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9.4 Accounting for a license bundled with other goods or services
Publication date: 31 Mar 2024
us Revenue guide
Licenses that are not distinct should be combined with other goods and services in the contract until they become a bundle of goods or services that is distinct. Reporting entities should recognize revenue when (or as) it satisfies the combined performance obligation. Management will need to determine whether the combined performance obligation is satisfied over time or at a point in time and, if satisfied over time, an appropriate measure of progress.
Management may need to consider the nature of the license included in the bundle (that is, whether the license is a right to access or a right to use IP) in order to assess the accounting for the combined performance obligation. Management should also consider why the license and other goods or services are bundled together to help determine the accounting for the bundle.
The revenue standard addresses how a reporting entity should account for a combined performance obligation that includes a license.
Excerpt from ASC 606-10-55-57
When a single performance obligation includes a license (or licenses) of intellectual property and one or more other goods or services, the entity considers the nature of the combined good or service for which the customer has contracted…in determining whether that combined good or service is satisfied over time or at a point in time… and, if over time, in selecting an appropriate method for measuring progress…
An example of a bundle that includes a license and other goods and services is a license to intellectual property with a 10-year term that is bundled with a one-year service into a single performance obligation. The nature of the license could impact the accounting for the combined performance obligation in this fact pattern. If the license is a right to access IP, revenue would likely be recognized over the 10-year license term. In contrast, if the license is a right to use IP, the reporting entity might conclude that revenue should be recognized over the one-year service period.
Accounting for a combined performance obligation that includes a license will require judgment. Management should consider the nature of the promise and the item for which the customer has contracted. This would include assessing the relative significance of the license and the other goods or services to the bundle. For example, if the license is incidental to the bundle, the assessment of whether the license is a right to access or a right use IP would not be relevant to the accounting for the bundle.
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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