Licenses and franchise agreements

Licenses are common in the retail and consumer sector. Many products include a licensed image or name. Retail and consumer entities may license their trade names or grant franchise rights to others. Accounting for licenses and franchise rights under the revenue standard may be different compared to today.

Example 1 Licenses

Facts: A designer of jeans has a worldwide recognized brand. A global manufacturer of dolls contracts with the designer for the right to use its brand name on the dolls clothes. The terms of the agreement provide the doll manufacturer with rights to use the brand name on the dolls clothes for two years. The designer will receive 1 million upfront and 12% of all proceeds from the sales of the dolls that include branded jeans. The doll manufacturer will provide updated sales estimates on a quarterly basis and actual sales data on a monthly basis.

When does the designer recognize revenue?