Revenue Recognition For License Fee

Licensing revenues are a significant source of revenue for several publicly traded companies.

Revenue recognition for license fee. Typically the line items for revenue recognition in include licence fee which is broken down further to initial license fee or a capacity license fee implementation and customization fee annual maintenance support fee. You may also have a setup fee over the subscription fee. For accounting purposes saas subscription revenues should be considered non refundable up front fees. Ifrs 15 which came into effect on 1 january 2018 is a new revenue recognition standard that was drawn up by the international accounting standards board iasb to force businesses to consider the timing of revenue recognition particularly in relation to long term contracts.

Licences 223 9 6 sales or usage based royalties 225. Gift card revenue recognition breakage. 9 4 timing and pattern of revenue recognition 220 9 5 contractual restrictions and attributes of. Perpetual licenses and software license revenue recognition.

Bundling and discounting complicate revenue recognition. 10 6 non refundable up front fees 289 10 7 sales outside ordinary activities 295 11 presentation 299. Revenue recognition is vital to correctly determine the financial health of your company and you still need to recognize your revenue only when you earn it. According to sab 104 and software license revenue recognition rules revenue for both perpetual and time based licenses can be recognized when the licenses are delivered as long as a firm has satisfied the following rules.

In a subscription model all these are bundled into a subscription fee. Say your company prices software at 800 per year and training at 200 per year. An arrangement with the customer exists. Subscription businesses are very familiar with this kind of revenue as it s usually the primary fee that consumers pay to use your service.

Under asu 2016 10 the license renewal revenue would be recognized on january 1. If you decide to bundle those two services together and sell the software at a discount for 500 while throwing training in for free does that mean the training has no value in terms of generating revenue. The license was scheduled to expire on dec. Asc 606 the franchise contract is recognized as a distinct series of performance obligations and essentially is a license that allows the franchisee to use the franchisor s intellectual property.