1. Assurance vs. Service Warranties
  • Assurance-Type Warranty: Provides the customer with assurance that the product complies with agreed-upon specifications. This is accounted for under standard provisions rules (IAS 37 / ASC 460) and is not a separate performance obligation.
  • Service-Type Warranty: Provides a service in addition to the assurance that the product complies with specifications (e.g., extended maintenance). This is a distinct performance obligation; a portion of the transaction price must be allocated to it and recognized over the coverage period.

2. Principal vs. Agent Determinations
When another party is involved in providing goods or services to a customer, the entity must determine whether its role is as a principal (recognizing revenue on a gross basis) or an agent (recognizing revenue on a net fee/commission basis).
The deciding factor is control: a principal controls the specified good or service before it is transferred to the customer.
3. Licensing Intellectual Property (IP)
Revenue from licensing intellectual property is split based on the nature of the license:
  • Right to Access IP: The entity’s performance affects the IP over the license period (dynamic IP). Revenue is recognized over time (e.g., a subscription to an ongoing software platform).
  • Right to Use IP: The customer uses static IP as it exists at a single point in time. Revenue is recognized at a point in time when the license becomes effective (e.g., a franchise logo file from a specific historical year).

 
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