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ACCA Strategic Professional · Strategic Business Reporting (International) · Revenue

Kappa Software grants a customer a licence to use its game software as it exists at the grant date. Kappa has no obligation to update it and the customer can use it immediately. The licence is for five years and is distinct from other promises, for $600,000 paid upfront. Under IFRS 15, when is the revenue recognised?

Revenue of $600,000 is recognised at a point in time, when the customer can first use and benefit from the licence. This is a right-to-use licence of the software as it exists, with no ongoing activities by Kappa that significantly change it, so spreading over time is not appropriate.

  1. AEvenly over the five-year licence period
  2. BAt the point in time the customer can use and benefit from the licenceCorrect
  3. CWhen the cash is received, regardless of control
  4. DOver the period in which Kappa develops future updates

Explanation

The licence is a right to use the intellectual property as it exists at the point of grant, because there are no updates that significantly affect the IP. Revenue is therefore recognised at a point in time, when control transfers and the customer can use the licence. Spreading it over five years would apply to a right-to-access licence.

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