ASC

ASC 360-922

Entertainment—Cable Television

360 Property, Plant, and Equipment

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In brief

IntermediateInventory and PP&EInitial measurementSubsequent measurementIndustry-specific

This subtopic governs how cable television entities account for plant and installation costs during the "prematurity period" — the span between the start of construction/marketing and the point at which the system is substantially complete and serving subscribers. Management must fix the prematurity period before revenue from the first subscriber is recognized (presumed not to exceed two years), capitalize cable plant costs and initial subscriber installation costs in full during that period, and record depreciation using a subscriber-based fraction rather than full depreciation. Distinguishable portions of a system in the prematurity period are accounted for and tested for recoverability separately.

Key points (7)
  • Management must establish the beginning and end of the prematurity period before revenue is recognized from the first subscriber, presumed not to exceed two years (longer only in major urban markets), and it cannot be changed except for highly unusual circumstances (360-922-25-1).
  • A clearly distinguishable portion of a system in the prematurity period is accounted for separately, using characteristics such as geographic, mechanical (separate head-end), timing, investment-decision, and accounting-records differences (360-922-25-1; 360-922-25-3).
  • Costs of the remainder of the system are charged to a portion in the prematurity period only if specifically identified with that portion's operations (360-922-25-4).
  • During the prematurity period, cable television plant costs — materials, direct labor, and construction overhead — continue to be capitalized in full, and initial subscriber installation costs (material, labor, and overhead of the drop) are capitalized (360-922-25-5; 360-922-25-7).
  • Depreciation during the prematurity period equals monthly depreciation of total capitalized costs expected at completion multiplied by a fraction whose denominator is total subscribers expected at the end of the period and whose numerator is the greatest of expected average subscribers for the month, straight-line progress subscribers, or actual average subscribers (360-922-35-2; 360-922-35-3).
  • That same fraction allocates programming and other system costs between current and future operations (360-922-35-3; see 922-350-25-1).
  • Capitalization does not stop when total cost exceeds recoverable amount; capitalization continues and the provision reducing capitalized costs to recoverable value is increased (360-922-35-4), and capitalized initial installation costs are depreciated over no longer than the plant depreciation period (360-922-35-5).

For students. The signature rule here is the subscriber-based depreciation fraction — students often assume full depreciation begins once the plant is placed in service, but during the prematurity period only a proportional amount is recorded. Also note the counterintuitive rule in 360-922-35-4: unrecoverable costs are still capitalized, with the shortfall handled through an increased valuation provision rather than by halting capitalization.

prematurity periodcable television plantinitial subscriber installation costssubscriber fraction depreciationportion of a cable systemrecoverability provisionconstruction overhead capitalizationcost allocation between current and future operations

Machine-generated study aid for ASC 360-922. Check the source paragraphs below.

360-922-00Status

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360-922-00-1
The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
922-360-25-1AmendedAccounting Standards Update No. 2014-0905/28/2014

360-922-05Overview and Background

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360-922-05-1
This Subtopic provides guidance for certain costs incurred by entities in the cable television industry during the periods of cable construction and service.

360-922-15Scope and Scope Exceptions

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Overall Guidance

360-922-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 922-10-15.

360-922-25Recognition

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Prematurity Period—Certain Capitalizable Costs

360-922-25-1
Before revenue is recognized from the first subscriber, management shall establish the beginning and end of the prematurity period, subject to a presumption that the prematurity period usually will not exceed two years. The prematurity period frequently will be shorter than two years; a longer period may be reasonably justified only in major urban markets. After the prematurity period is established by management, it shall not be changed except as a result of highly unusual circumstances. A portion of a cable television system that is in the prematurity period and can be clearly distinguished from the remainder of the system shall be accounted for separately.
360-922-25-2
(Some cable television entities have used the word segment to refer to a portion of a cable television system. In view of the use of segment in a different context in Topic 280, the word portion is used throughout the Entertainment—Cable Television Topic.)
360-922-25-3
Such a portion would have most of the following characteristics:
  1. a
    Geographical differences, such as coverage of a noncontiguous or separately awarded franchise area
  2. b
    Mechanical differences, such as a separate head-end
  3. c
    Timing differences, such as starting construction or marketing at a significantly later date
  4. d
    Investment decision differences, such as separate break-even and return-on-investment analyses or separate approval of start of construction
  5. e
    Separate accounting records, separate budgets and forecasts, or other accountability differences.
360-922-25-4
Costs incurred by the remainder of the system shall be charged to the portion in the prematurity period only if they are specifically identified with the operations of that portion.
360-922-25-5
During the prematurity period, costs of cable television plant, including materials, direct labor, and construction overhead shall continue to be capitalized in full.
360-922-25-6
See paragraph 922-835-25-1 concerning the capitalization of interest costs during the prematurity period.

Subscriber Installation Costs

360-922-25-7
Initial subscriber installation costs, including material, labor, and overhead costs of the drop, shall be capitalized.

360-922-35Subsequent Measurement

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Prematurity Period

360-922-35-1
For capitalizable costs identified for the portion of a cable television system that is in the prematurity period, separate projections for the portion shall be developed and the portion's capitalized costs shall be evaluated separately during the prematurity period for recoverability (see paragraph 922-360-35-4).

Depreciation Expense

360-922-35-2
During the prematurity period, depreciation expense shall be determined by multiplying the monthly depreciation of total capitalized costs expected on completion of the prematurity period by the fraction described in the following paragraph, using the depreciation method that will be applied by the entity after the prematurity period.
360-922-35-3
The following fraction shall be determined each month of the prematurity period. The denominator of the fraction shall be the total number of subscribers expected at the end of the prematurity period. The numerator of the fraction shall be the greatest of the following:
  1. a
    The average number of subscribers expected that month as estimated at the beginning of the prematurity period
  2. b
    The average number of subscribers that would be attained using at least equal (that is, straight-line) monthly progress in adding new subscribers towards the estimate of subscribers at the end of the prematurity period
  3. c
    The average number of actual subscribers.
This fraction also is to be used to allocate programming costs and other system costs between current and future operations, as discussed in paragraph 922-350-25-1.

Recoverability

360-922-35-4
Capitalized plant is subject to the provisions of Topic 360. Capitalization of costs shall not cease when the total cost reaches an amount that is not fully recoverable. Capitalization of costs shall continue, and the provision required to reduce capitalized costs to recoverable value shall be increased.

Subscriber Installation Costs

360-922-35-5
Initial subscriber installation costs capitalized under paragraph 922-360-25-7 shall be depreciated over a period no longer than the depreciation period used for cable television plant.

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