Page 15 - 19. COMPILER QB - INDAS 115

D. Revenue from two years‖ service period should be recognised over the 2-year period on monthly basis ie on
31st March, 2017 revenue for two years‖ service period will be Rs. 5,625 (Rs. 1,35,000/24 months)

E. Amount of two years’ service period due within 12 months from the reporting date = (1,35,000 / 24
months) x 12 months = Rs. 67,500 (Current).

Amount of two years’ service period due after 12 months from the reporting date = (1,35,000 / 24
months) x 11 months = Rs. 61,875 (Non-current).

Q13. (MARCH 19)
An entity enters into a contract with a customer for two intellectual property licenses (Licenses A and B),
which the entity determines to represent two performance obligations each satisfied at a point in time. The
stand-alone selling prices of Licences A and B are Rs. 1,600,000 and Rs. 2,000,000, respectively. The entity

transfers Licence B at inception of the contract and transfers Licence A one month later.

Case A — Variable consideration allocated entirely to one performance obligation
The price stated in the contract for Licence A is a fixed amount of Rs. 1,600,000 and for Licence B the

consideration is three per cent of the customer's future sales of products that use Licence B. For purposes of
allocation, the entity estimates its sales-based royalties (ie the variable consideration) to be Rs. 2,000,000.
Allocate the transaction price.

Case B—Variable consideration allocated on the basis of stand-alone selling prices
The price stated in the contract for Licence A is a fixed amount of Rs. 600,000 and for Licence B the

consideration is five per cent of the customer's future sales of products that use Licence B. The entity's
estimate of the sales-based royalties (i.e. the variable consideration) is Rs.3,000,000. Allocate the transaction
price and determine the revenue to be recognised for each license and the contract liability, if any.
SOLUTION

Case A—Variable consideration allocated entirely to one performance obligation
To allocate the transaction price, the entity considers the criteria in paragraph 85 and concludes that the
variable consideration (i.e. the sales-based royalties) should be allocated entirely to Licence B. The entity

concludes that the criteria are met for the following reasons:
(a) The variable payment relates specifically to an outcome from the performance obligation to transfer
Licence B (i.e. the customer's subsequent sales of products that use License B).
(b) allocating the expected royalty amounts of Rs. 2,000,000 entirely to Licence B is consistent with the
allocation objective in paragraph 73 of Ind AS 115. This is because the entity's estimate of the amount of

sales-based royalties (Rs. 2,000,000) approximates the stand-alone selling price of Licence B and the fixed
amount of Rs. 1,600,000 approximates the stand-alone selling price of Licence A. The entity allocates Rs.
1,600,000 to Licence A. This is because, based on an assessment of the facts and circumstances relating
to both licences, allocating to Licence B some of the fixed consideration in addition to all of the variable
consideration would not meet the allocation objective in paragraph 73 of Ind AS 115.
The entity transfers Licence B at inception of the contract and transfers LicenceA one month later. Upon

the transfer of Licence B, the entity does not recognise revenue because the consideration allocated to
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