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Under Ind AS 115, revenue from a sales-based or usage-based ROYALTY arising from a licence of intellectual property is recognised at the LATER of:
APeriod-end, based on the entity's best estimate using expected-value methodology
BContract inception, with an estimate of the lifetime royalty constrained
CThe subsequent sale/usage occurring, and the related performance obligation being satisfied
DCash collection from the customer
Answer & Solution
Correct answer: C. The subsequent sale/usage occurring, and the related performance obligation being satisfied
Para B63 of Ind AS 115 carves IP royalties OUT of the normal variable-consideration constraint. Recognition is at the LATER of (a) the subsequent sale/usage occurring, and (b) the performance obligation to which the royalty relates being (partially or fully) satisfied. This exception applies when the royalty relates only to a licence of IP or where the licence is the predominant item.
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