CERTYNEX IFRS ACADEMY

The Aquilon studio grants a toy manufacturer a distinct licence over the characters of its animated series and also provides it with graphic designs for its packaging. The only consideration is a royalty of 6% of toy sales, which pays for both the licence and the designs. Aquilon reasonably expects the manufacturer to ascribe significantly more value to the licence than to the designs (case data). How does Aquilon account for the royalty?

It estimates at signature the royalties for the whole contract term, subject to the constraint on variable consideration, and recognises the amount retained over the contract.

It applies the exception to the portion of the royalty relating to the licence and the general variable consideration requirements to the portion relating to the designs.

It applies the exception to the whole royalty: revenue at the later of the toy sales and the satisfaction of the related performance obligation.

It recognises no revenue before the end of the contract, when the total royalties are known.