SALES AND USAGE BASED ROYALTIES

Question 1

What are Sales and Usage Based Royalties?

Answer 1

Sales and usage based royalties are a form of variable consideration.

Are revenue for a sales-based or usage-based royalty promised in exchange for a license of intellectual property.

Question 2

How are Sales and Usage Based Royalties accounted for?

Answer 2

An entity shall recognize revenue for a sales-based or usage-based royalty promised in exchange for a license of intellectual property only when the later of the following events occurs:
* the subsequent sale or usage occurs; or
* the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied (or partially satisfied).

NO recognition when it is ‘highly probable such that a subsequent change in the estimate would not result in a significant revenue reversal’ as is the case for all other types of variable consideration