prematurity period

This Subtopic governs intangible-type costs incurred by cable television systems, principally programming and other system costs during the "prematurity period" and franchise application costs. During the prematurity period, fixed system costs incurred in anticipation of a fully operating system are split between current operations (expensed) and future operations (capitalized) using the subscriber-based fraction in 922-360-35-3, and amortization is computed using that same fraction. Costs of successful franchise applications are capitalized and amortized under Topic 350, while unsuccessful or abandoned franchise costs are expensed.

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.

This Subtopic tells cable television entities which industry-specific costs must be expensed rather than capitalized. During the prematurity period (while a cable system is being built out and partially marketed), subscriber-related costs and general and administrative expenses are period costs. Costs of disconnecting/reconnecting subscribers after initial installation, and costs of unsuccessful franchise applications or abandoned franchises, are also charged to expense.

This Subtopic tells cable television entities how much interest cost to capitalize while a cable system is under construction during the "prematurity period." Interest is capitalized under Topic 835 by applying the capitalization rate from 835-20-30-3 through 30-4 to the average qualifying assets, capped at total interest incurred for that system in the period. Because part of the system is already in service earning revenue, only the accumulated expenditures exceeding the fraction in 922-360-35-3 of total estimated system cost qualify.

ASC 922-10 is the Overall subtopic of the Entertainment—Cable Television Topic, which addresses accounting and reporting for costs and expenses of constructing and operating a cable television system (922-10-05-1). It applies to all entities in the cable television industry and provides only incremental industry-specific guidance, so those entities must also follow all other applicable GAAP (922-10-15-1 through 15-2). The Topic is organized into Subtopics covering intangibles/goodwill, property, plant, and equipment, other expenses, and interest.