Licenses are often included with other goods or services in a contract. An entity will need to use judgment in determining whether a license (1) is distinct or (2) should be combined with other promised goods and services in the contract as a single performance obligation. An entity would apply the guidance in ASC 606-10-25-14 through 25-22 in identifying the performance obligations in the contract. The licensing implementation guidance is applicable to arrangements with customers that contain (1) a distinct license or (2) a license that is the predominant promised item in a performance obligation involving multiple goods or services.
While this section addresses additional rights associated with users, additional rights could also include other incremental licenses, such as the right to use the software at additional locations or for different business segments.
In accordance with ASC 606-10-55-54 and ASC 985-20-15-5, software subject to a hosting arrangement is a license of IP (i.e., on-premise software) if (1) the “customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty” and (2) “[i]t is feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software.”