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20-F
MESOBLAST LTD filed this Form 20-F on 08/31/2018
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Title of standard

IFRS 15 Revenue from Contracts with Customers

Key requirements

IFRS 15 provides a single, principles based five-step model to be applied to all contracts with customers.

The five steps in the model are as follows:

       Identify the contract with the customer

       Identify the performance obligations in the contract

       Determine the transaction price

       Allocate the transaction price to the performance obligations in the contracts

       Recognize revenue when (or as) the entity satisfies a performance obligation.

Guidance is provided on topics such as the point in which revenue is recognized, accounting for variable consideration, costs of fulfilling and obtaining a contract and various related matters. New disclosures about revenue are also introduced.

Impact

The Group has reviewed all relevant revenue arrangements and expects the following effects of applying the new standard on the Group’s financial statements:

       Accounting for sales- or usage-based royalties – IFRS 15 contains an exception to the general principles for accounting for variable consideration for sales- or usage-based royalties arising from licenses of IP. Under this exception, royalties are recognized at the later of when underlying sales occur and all royalty-related performance obligations are satisfied. In the year ended June 30, 2018, the Group earned sales-based royalty and milestone income from licensing arrangement with JCR Pharmaceuticals Co., Ltd. (“JCR”) of $5.1 million. The Group estimates that the impact of applying the sales- or usage-based royalty exception will not have a material impact on transition to IFRS 15 from July 1, 2018.

       Accounting for the licensing of intellectual property (“IP”) – IFRS 15 contains specific implementation guidance for the accounting for licenses of IP. In particular, the Group is required to determine whether a license granted to a customer provides a right to use IP or a right to access IP. This determination affects whether revenue is recognized at a point in time or over time, respectively. In the year ended June 30, 2018, the Group recognized milestone revenue relating to the non-refundable up-front payment of $5.9 million (€5.0 million) received upon execution of the Group’s patent license arrangement with Takeda Pharmaceutical Company Limited (“Takeda”) in December 2017 and $5.9 million (€5.0 million) in relation to further payments due within 12 months of the patent license agreement date for the product Alofisel®. The license of IP to Takeda is a license to use under IFRS 15 and therefore revenue is recognized at a point in time as performance obligations are satisfied. Since the performance obligations have been satisfied for the revenue recognized in the year ended June 30, 2018, the Group does not expect a material impact on transition to IFRS 15 on July 1, 2018.

       Accounting for contracts with variable consideration – IFRS 15 contains a constraint that allows variable consideration to be included in the transaction price only to the extent that it is highly probable that a significant reversal of cumulative revenue recognized will not occur. Under the patent license arrangement with Takeda, the Group is entitled to up to €10.0 million in payments from Takeda when Alofisel® reaches certain product regulatory milestones. The product regulatory milestones are subject to the constraint over variable consideration and the Group has not recognized consideration in respect of these payments in the calculation of the transaction price for revenue recognized in the year to June 30, 2018. Therefore, we do not expect there to be a material impact on transition to IFRS 15 on July 1, 2018.

Effective Date

IFRS 15 must be applied for financial years commencing on or after January 1, 2018. The Group has not adopted IFRS 15 before its mandatory date and intends to adopt the standard using the modified retrospective approach which means that the cumulative impact of the adoption will be recognized in retained earnings as of July 1, 2018, and comparative disclosures will not be restated.

 

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