ASC

ASC 720-928

Entertainment—Music

720 Other Expenses

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In brief

IntermediateRecognitionIndustry-specificImpairment

This Subtopic tells music-industry entities when to expense artist royalties, record master production costs, advance minimum guarantees paid by licensees, and other license fees. The core rule is that artist royalties (adjusted for anticipated returns) are charged to expense in the period the record sale occurs, advances are expensed as royalties are subsequently earned, and any advance or minimum guarantee that appears unrecoverable is expensed when the loss becomes evident (720-928-25-1, 720-928-25-3).

Key points (6)
  • Royalties earned by artists, as adjusted for anticipated returns, are charged to expense in the period in which the sale of the record takes place (720-928-25-1).
  • Advance royalties are charged to expense as subsequent royalties are earned by the artist (720-928-25-1).
  • Any portion of an artist advance that subsequently appears not to be fully recoverable from future royalties is charged to expense in the period the loss becomes evident (720-928-25-1).
  • The portion of record master cost borne by the record company that is not reported as an asset under 928-340-25-2 is charged to expense (720-928-25-2).
  • A minimum guarantee paid in advance by a licensee that no longer appears recoverable through future use of the licensed rights is expensed to the extent nonrecoverable (720-928-25-3, referencing 928-340-35-3).
  • The Subtopic follows the scope of the Overall Subtopic in Section 928-10-15 (720-928-15-1).

For students. The trap is treating advances as permanent assets: an advance royalty or minimum guarantee is capitalized only while recoverable, and must be expensed as royalties are earned or as soon as nonrecoverability becomes evident. Pair this expense guidance with the asset-side rules in 928-340.

artist royaltiesadvance royaltiesrecord master costsminimum guaranteelicense agreementsrecoverabilityanticipated returnsexpense recognition

Machine-generated study aid for ASC 720-928. Check the source paragraphs below.

720-928-05Overview and Background

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720-928-05-1
This Subtopic provides guidance for accounting when an entity in the music industry expenses any of the following:
  1. a
    Royalties earned by artists
  2. b
    Costs to produce record masters
  3. c
    Minimum guarantees paid in advance by a licensee to a licensor
  4. d
    Other fees paid under license agreements.

720-928-15Scope and Scope Exceptions

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Overall Guidance

720-928-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 928-10-15.

720-928-25Recognition

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Licensor Accounting

720-928-25-1
The amount of royalties earned by artists, as adjusted for anticipated returns, shall be charged to expense of the period in which the sale of the record takes place. Advance royalties shall be charged to expense as subsequent royalties are earned by the artist. Any portion of such advances that subsequently appear not to be fully recoverable from future royalties to be earned by the artist shall be charged to expense during the period in which the loss becomes evident.
720-928-25-2
The portion of the record master cost borne by the record company not reported as an asset in accordance with paragraph 928-340-25-2 shall be charged to expense.

Licensee Accounting

720-928-25-3
As described in paragraph 928-340-35-3, if all or a portion of a minimum guarantee paid in advance by a licensee subsequently appears not to be recoverable through future use of the rights obtained under the license, the nonrecoverable portion shall be charged to expense.

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