Statements of Position



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This proposed Statement of Position (SOP) provides guidance on accounting by producers and distributors of motion picture films. This proposed SOP requires the following: 1. Revenue should be recognized when all of the following conditions are met: a. Persuasive evidence of a sale or licensing arrangement with a customer exists. b. The film is complete and, in accordance with the terms of the arrangement, either has been delivered or is available to be delivered. c. The license period of the arrangement has begun and the customer can begin its exploitation or exhibition. d. The gross revenue is fixed or determinable. e. Collection is reasonably assured. Licensing arrangements that meet all of the above conditions and transfer substantially all of the benefits and risks incident to ownership of the film on an exclusive basis for an individual market and territory should be accounted for as sales. In arrangements that do not meet the "substantially all" and exclusivity requirements, but meet all of the conditions above, revenue should be recognized ratably over the licensing period unless another systematic and rational basis is more representative of the time pattern in which use benefit from the licensed film is diminished, in which case that basis should be used. 2. The costs of producing a film and bringing that film to market consist of production costs, exploitation costs, and participation costs. The present value of participation costs should be accrued when their payment is probable, which is usually determined when the film has been released. Entities should recognize an asset as part of film costs for the initial amount of the participation liability. Production costs and capitalized participation costs should be amortized using the individual-film-forecast-computation method. The individual-film-forecast-computation method requires estimating remaining ultimate gross revenues (original estimates should not exceed 10 years, and amounts included are subject to limitations) as of the beginning of each period. It also requires determining a fraction, the numerator of which is actual gross revenues from the film for the current period and the denominator of which is the estimated unrecognized ultimate gross revenues as of the beginning of the period. This fraction is applied to the unamortized balance of production costs and capitalized participation costs as of the beginning of the period to determine periodic amortization. In this way, in the absence of changes in estimates, production costs and capitalized participation costs are amortized in a manner that yields a constant rate of profit for each film, excluding exploitation costs and other period expenses. Amortization should begin when a film is released and revenues from that film are recognized. Prerelease and early release exploitation costs incurred on a territory-by-territory basis in the theatrical market should be capitalized and amortized over the expected period of exploitation of the film in that theatrical market and territory, not to exceed three months from release date. Capitalized exploitation costs for a particular territory should be amortized in the same ratio that theatrical gross revenues earned in that particular theatrical territory bear to estimated total theatrical gross revenues for that territory for the shorter of (a) three months or {b) the theatrical release period in that territory. All capitalized exploitation costs should be fully amortized by the end of the theatrical release period or three months (whichever is shorter). Exploitation costs should not be accrued in advance of incurrence. After the period leading up to the theatrical release of a film in a territory and the initial three-month period, all exploitation costs should be expensed as incurred. Exploitation costs incurred in connection with the release of a film in markets other than the theatrical market should be expensed as incurred. 3. Unamortized film costs should be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the film may not be recoverable, in accordance with Financial Accounting Standards Board (FASB) Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. 4. Certain disclosures should be made in the financial statements or notes thereto. This SOP is effective for financial statements for fiscal years beginning after December 1 5, 1 999, with earlier application encouraged. The cumulative effect of changes in accounting principle caused by adopting the provisions of this SOP should be included in the determination of net income in conformity with paragraph 20 of Accounting Principles Board Opinion No. 20, Accounting Changes.

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Motion picture industry -- Accounting


Accounting | Taxation


Originally published by: American Institute of Certified Public Accountants; Copyright and permission to reprint held by: American Institute of Certified Public Accountants.

Proposed statement of position : accounting by producers and distributors of films;Accounting by producers and distributors of films; Exposure draft (American Institute of Certified Public Accountants), 1998, Oct. 16



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