Cost of Revenues
Film Costs - The Company capitalizes film costs in accordance with ASC 926. Film costs are stated at the lower of cost, less accumulated amortization, or fair value. Production overhead, a component of film costs, includes allocable costs of individuals or departments with exclusive or significant responsibility for the production of films. Substantially all of the Companys resources are dedicated to the production of its films. Capitalized production overhead does not include selling, general and administrative expenses. Interest expense on funds invested in production is capitalized into film costs until production is completed. In addition to the films being produced, costs of productions in development are capitalized as development film costs in accordance with the provisions of the ASC and are transferred to film production costs when a film is set for production. In the event a film is not set for production within three years from the time the first costs are capitalized or the film is abandoned, all such costs are generally expensed.
Film Cost Amortization - Once a film is released, film costs are amortized and participations and residual costs are accrued on an individual film basis in the proportion that the revenue during the period for each film (Current Revenue) bears to the estimated remaining total revenue to be received from all sources for each film (Ultimate Revenue) as of the beginning of the current fiscal period as required by the ASC. The amount of film costs that is amortized each period will depend on the ratio of Current Revenue to Ultimate Revenue for each film for such period. The Company makes certain estimates and judgments of Ultimate Revenue to be received for each film based on information received from its distributor and its knowledge of the industry. Ultimate Revenue does not include estimates of revenue that will be earned beyond ten years of a films initial theatrical release date.
Unamortized film production costs are evaluated for impairment when indicators of impairment are present on a film-by-film basis in accordance with the requirements of the ASC. If the fair value of a film is less than its unamortized film cost, the unamortized film costs will be written down to fair value determined using a discounted cash flow calculation.