# ASC 405-926-55: Liabilities — Entertainment—Films — 55 Implementation Guidance and Illustrations

Source: FASB Accounting Standards Codification, Basic View

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## ASC 405-926-55: 55 Implementation Guidance and Illustrations

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#### Illustrations

##### [405-926-55-1](https://asc.understandingaccounting.org/asc/405/926/#405-926-55-1)

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This Example illustrates the adjustment of a participation liability that is in excess of a revised estimate of amounts ultimately payable (in accordance with paragraph [926-405-35-1](https://asc.understandingaccounting.org/asc/405/926/#405-926-35-1)).

##### [405-926-55-2](https://asc.understandingaccounting.org/asc/405/926/#405-926-55-2)

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In accordance with paragraph [926-405-35-1](https://asc.understandingaccounting.org/asc/405/926/#405-926-35-1), a participation liability that exceeds the unpaid amount expected to be ultimately payable shall be offset against the remaining carrying value of the corresponding film. This scenario can result from changes in ultimate revenue and cost estimates that result in reduced expectations of ultimate [participation costs](https://asc.understandingaccounting.org/glossary/p/#participation-costs "Parties involved in the production of a film may be compensated in part by contingent payments based on the financial results of a film pursuant to contractual formulas (participations) and by contingent amounts due under provisions of collective bargaining agreements (residuals). Such parties are collectively referred to as participants, and such costs are collectively referred to as participation costs. Participations may be given to creative talent, such as actors or writers, or to entities from whom distribution rights are licensed.").

##### [405-926-55-3](https://asc.understandingaccounting.org/asc/405/926/#405-926-55-3)

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Assume the following:

1.  a
    
    Film cost: $50,000
    
2.  b
    
    Estimated ultimate revenue:
    
    1.  1
        
        Year 1: $100,000
        
    2.  2
        
        Year 2: $80,000.
        
3.  c
    
    Actual revenue recognized:
    
    1.  1
        
        In Year 1: $60,000
        
    2.  2
        
        In Year 2: $10,000.
        
4.  d
    
    Estimated ultimate participation costs:
    
    1.  1
        
        Year 1: $10,000
        
    2.  2
        
        Year 2: $0.
        
5.  e
    
    For Year 1, film cost amortization was $30,000, and participation costs accrued were $6,000.

##### [405-926-55-4](https://asc.understandingaccounting.org/asc/405/926/#405-926-55-4)

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Adjustments of Participation Liability and [Film Costs](https://asc.understandingaccounting.org/glossary/f/#film-costs "Film costs include all direct negative costs incurred in the physical production of a film, as well as allocations of production overhead and capitalized interest in accordance with Topic 835. Examples of direct negative costs include costs of story and scenario; compensation of cast, directors, producers, extras, and miscellaneous staff; costs of set construction and operations, wardrobe, and accessories; costs of sound synchronization; rental facilities on location; and postproduction costs such as music, special effects, and editing.") in Year 2.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-644C1B0C-5013-48EB-A2BC-CB54CD59C52B-low.gif)
    
    Unamortized Film Costs Participation Liability Balance at end of Year 1 " $20,000 " " $6,000 " Adjustment to eliminate excess liability " (6,000)" " (6,000)" Adjusted balances " $14,000 " $-

##### [405-926-55-5](https://asc.understandingaccounting.org/asc/405/926/#405-926-55-5)

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Film cost amortization in Year 2:

-   $10,000 recognized revenue/$20,000 remaining ultimate revenue x $14,000 unamortized film costs = $7,000
    
-   The $20,000 remaining ultimate revenue is computed as follows: Year 2 revised ultimate revenue of $80,000 minus cumulative prior recognized revenue of $60,000.
    
-   The $14,000 unamortized film costs is computed as follows: Film cost of $50,000 minus cumulative prior amortization of $30,000 and minus the excess participation liability adjustment of $6,000.

##### [405-926-55-6](https://asc.understandingaccounting.org/asc/405/926/#405-926-55-6)

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Participation costs accrued in Year 2:

-   $10,000 recognized revenue/$20,000 remaining ultimate revenue x $0 remaining ultimate participation costs = $0
    
-   The $20,000 remaining ultimate revenue is computed as follows: Year 2 revised ultimate revenue of $80,000 minus cumulative prior recognized revenue of $60,000.
    
-   Estimated ultimate participation costs were reduced to $0 in Year 2; accordingly, the excess liability was reversed and no further accruals are required.