participation costs

This Subtopic tells film production and distribution entities how to classify certain film-related cash flows in the statement of cash flows. Cash outflows for film costs, participation costs, exploitation costs, and manufacturing costs are operating activities—not investing—even though film costs are capitalized as assets. Amortization of film costs is added back in the reconciliation of net income to net cash flows from operating activities.

ASC 405-926 governs how film production and distribution entities accrue participation costs — amounts owed to third parties such as actors and writers — and costs of insignificant post-release changes to a film. Participation costs are accrued using the individual-film-forecast-computation method (current period actual revenue over estimated remaining unrecognized ultimate revenue at the beginning of the fiscal year), but only when it is probable an entity will sacrifice assets to settle the obligation, and never for less than amounts currently payable. If the recorded participation liability exceeds estimated unpaid ultimate participation costs, the excess reduces unamortized film costs first, then goes to income.

This Subtopic governs how film production and distribution entities account for certain costs incurred to develop and market a film, including overall deal costs and exploitation costs. Costs of overall deals that cannot be identified with specific projects are charged to expense as incurred over the related time period (720-926-25-1), advertising costs follow Subtopic 720-35 (720-926-25-2), and all other exploitation costs, including marketing costs, are expensed as incurred (720-926-25-3).

ASC 926-10 is the overall/scope subtopic for Entertainment—Films. It establishes that Topic 926 provides only incremental, industry-specific guidance on film costs, participation costs, and manufacturing costs for producers and distributors that own or hold rights to distribute or exploit films in any market or territory. Entities in scope must still apply all other applicable GAAP not contained in Topic 926.

ASC 926-20 governs how film production and distribution entities capitalize, amortize, impair, and disclose film costs, which must be reported as a separate asset on the balance sheet (926-20-25-1). Films predominantly monetized on their own are amortized by the individual-film-forecast-computation method — current-period revenue over remaining unrecognized ultimate revenue as of the beginning of the fiscal year (926-20-35-1) — while films in a film group are expensed based on a reasonably reliable estimate of the film's use (926-20-35-2). Unamortized film costs are written down to fair value when triggering events indicate impairment, and such write-downs may never be restored (926-20-35-13).