ASC 340-928
Entertainment—Music
340 Other Assets and Deferred Costs
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ASC 340-928 governs when a music entity may capitalize advance royalties paid to artists, the cost of record masters, and minimum guarantees paid in advance by licensees. Capitalization hinges on recoverability: an advance royalty or the record company's share of record master cost is an asset only if the artist's past performance and current popularity provide a sound basis for estimating recovery from future royalties or sales. Capitalized amounts are charged to expense as royalties are earned or amortized over the recorded performance's life in relation to expected net revenue, with immediate write-off of nonrecoverable portions.
Key points (7)
- An advance royalty paid to an artist is reported as an asset only if the artist's past performance and current popularity provide a sound basis for estimating recoverability from future royalties (340-928-25-1).
- The portion of record master cost borne by the record company is an asset if that same past-performance/current-popularity test supports recovery from future sales (340-928-25-2); the portion recoverable from the artist's royalties is accounted for as an advance royalty (340-928-25-3).
- Minimum guarantees paid in advance by a licensee are reported as an asset by the licensee (340-928-25-4).
- Advance royalties are charged to expense as subsequent royalties are earned by the artist, and any portion that appears not to be fully recoverable is expensed in the period the loss becomes evident (340-928-35-1).
- Capitalized record master cost is amortized over the estimated life of the recorded performance using a method that reasonably relates the amount to net revenue expected to be recognized (340-928-35-2).
- Minimum guarantees are charged to expense in accordance with the license agreement terms, with any nonrecoverable portion expensed (340-928-35-3).
- Advance royalties are classified as current and noncurrent assets as appropriate (340-928-45-1), and the capitalized record master cost borne by the record company is disclosed separately (340-928-50-1).
For students. This is a classic industry-specific capitalization rule: the asset test is a judgmental recoverability standard tied to the artist's track record and current popularity, not a bright line. A common mistake is capitalizing the entire record master cost — only the portion borne by the record company is tested for capitalization; the portion recoverable from the artist's royalties is treated as an advance royalty.
Machine-generated study aid for ASC 340-928. Check the source paragraphs below.
340-928-00Status
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| Paragraph | Action | Accounting Standards Update | Date |
| 928-340-35-2 | Amended | Accounting Standards Update No. 2014-09 | 05/28/2014 |
340-928-05Overview and Background
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340-928-15Scope and Scope Exceptions
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Overall Guidance
340-928-25Recognition
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Licensor Accounting
Licensee Accounting
340-928-35Subsequent Measurement
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Licensor Accounting
Licensee Accounting
340-928-45Other Presentation Matters
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Licensor Accounting
340-928-50Disclosure
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