HaSo Ltd. deals in manufacture of computer hardware and development of software applications. Discuss the revenue recognition of HaSo Ltd. as per…

(i) Although the updates and upgrades will change the functionality of the software, they are not considered in determining the nature of the entity's promise in granting the license. The activities of HaSo Ltd. to provide updates or upgrades are not considered because they transfer a promised goods or service to Mr. Grahak i.e. updates or upgrades are distinct from the licence. Therefore, the software application license - 2,00,000 provides a right to use the IP that is satisfied at a point in time. Hence, 2,00,000 will be recognised immediately in the income statement by HaSo Ltd., on purchase of the software application license by Mr Grahak. (ii) The licence provides Franchisee Ltd. access to the IP as it exists at any point in time in the licence period. This is because: HaSo Ltd. is required to maintain the brand, which will significantly affect the IP by affecting Franchisee Ltd.'s ability to obtain benefit from the brand;Any action by HaSo Ltd. may have a direct positive or negative effect on Franchisee Ltd.; andThese activities do not transfer goods or service to Franchisee Ltd. Therefore, HaSo Ltd. recognizes the up-front fee over the 5-year franchise period.