ASC 926
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ASC 926 – Entertainment–Films
Establishes accounting for film costs, participations, residuals, and revenue recognition based on the ultimate revenue estimation method.
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Conceptual Framework Linkage
Matching film costs to the pattern of revenue they generate
A film generates revenue over an EXTENDED, often UNPREDICTABLE period – theatrical release, home video, streaming licensing, television syndication – sometimes stretching YEARS or even DECADES after production. ASC 926 addresses how to CAPITALISE film production costs and, critically, how to AMORTISE them in a pattern that genuinely matches the film's REVENUE-GENERATING lifecycle, using the "ULTIMATE REVENUE" concept (Section 4) as its central mechanism.
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Scope
Film and television production/distribution entities
ASC 926 applies to entities that PRODUCE or ACQUIRE and DISTRIBUTE films for theatrical, home entertainment, streaming, or television exhibition.
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Film Cost Capitalization – What Costs Qualify
Development, direct production, and allocable overhead/interest costs
CAPITALISABLE film costs include DEVELOPMENT costs (story rights, screenplay costs) once a film is deemed likely to be produced, DIRECT PRODUCTION costs (cast and crew compensation, set construction, location costs), production OVERHEAD allocable to specific film projects, and CAPITALISED INTEREST on production financing during the production period (per ASC 835's qualifying asset principles) – accumulated as an intangible/other asset (UNAMORTISED film costs) until the film is RELEASED and begins generating revenue.
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Ultimate Revenue Estimation and the Individual-Film-Forecast Method
Amortising in proportion to revenue actually earned relative to total expected revenue
Under the INDIVIDUAL-FILM-FORECAST method, film costs are AMORTISED (and participations/residuals accrued) in the SAME RATIO that CURRENT PERIOD revenue bears to the entity's ESTIMATE of the film's TOTAL "ULTIMATE REVENUE" – the total revenue expected to be recognised from ALL sources (theatrical, home entertainment, licensing) over the film's ENTIRE useful life (subject to a MAXIMUM look-forward period, generally capped at 10 years for estimation purposes). This directly TIES cost recognition to the PACE at which the film is actually generating value, rather than to an arbitrary time-based schedule.
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Participations and Residuals
Contingent compensation, accrued using the same ultimate revenue ratio
PARTICIPATIONS (contingent compensation payable to actors, directors, or writers based on the film's financial performance) and RESIDUALS (additional compensation required under industry guild agreements for subsequent exhibition, e.g. television reruns or streaming) are ACCRUED using the SAME ultimate-revenue-ratio methodology as film cost amortisation – recognised as an expense in proportion to the revenue recognised in the period relative to total ultimate revenue.
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Impairment of Film Costs
Fair value assessment triggered by specific indicators
Unamortised film costs are tested for IMPAIRMENT when INDICATORS suggest the film's FAIR VALUE may have fallen below its unamortised cost – such as significantly reduced revenue estimates, an unfavourable market reception, or a significant delay in release. If the film's FAIR VALUE is determined to be BELOW its unamortised cost, an impairment LOSS is recognised for the difference – WRITTEN DOWN to fair value, with NO subsequent reversal permitted even if the film's prospects later improve.
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Worked Example – Film Cost Amortization Using the Ultimate Revenue Ratio
Tying amortisation to actual revenue performance
Example: A film's first-year theatrical release
A studio capitalises $80,000,000 of film costs. Total ULTIMATE REVENUE (theatrical, streaming, licensing, over the film's full useful life) is estimated at $200,000,000. In its first year, the film generates $60,000,000 of actual revenue.
Amortisation ratio = $60,000,000 ÷ $200,000,000 = 30%. Film cost amortisation for the year = 30% × $80,000,000 = $24,000,000 – directly proportional to the revenue actually earned relative to the film's total estimated ultimate revenue, NOT based on a fixed time schedule.
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Worked Example – a Participations Accrual
Accruing contingent talent compensation using the same ratio
Example: A lead actor's profit participation
Continuing the prior example, the film's lead actor has a contractual participation entitling them to compensation totalling $15,000,000 over the film's full ultimate revenue life, contingent on the film's financial performance.
Using the SAME 30% ultimate revenue ratio, the studio accrues participation expense of 30% × $15,000,000 = $4,500,000 in the first year – consistent with the same revenue-proportional pattern used for film cost amortisation itself.
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Disclosure Requirements
What ASC 926 requires
Components of unamortised film costs, and expected amortisation for each of the next 3 yearsImpairment charges recognised on film costs during the periodNature of participation and residual liabilities
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Whether impairment indicators are present, warranting a fair value assessment
SIGNIFICANT ESTIMATES
Estimated ultimate revenue – the single most consequential estimate in this Topic, driving both amortisation and participations accrual patterns, and subject to regular revision as actual results and market conditions evolve
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ASC 926 vs IFRS – Comparison
Comparison – ASC 926 vs general IFRS treatment of films (IAS 38 / IAS 2)
FeatureUS GAAP (ASC 926)IFRS (General Principles)
Dedicated film industry standardYES – a codified, named methodologyNONE – films treated as an intangible asset (IAS 38) or inventory (IAS 2) under GENERAL principles
Amortisation basisIndividual-film-forecast method, tied explicitly to ultimate revenue ratioGeneral principle: amortise in the pattern reflecting the consumption of expected economic benefits – conceptually similar, but WITHOUT a codified "ultimate revenue" methodology of the same name/specificity
Impairment reversalNOT permitted, once written downIAS 36 impairment reversals ARE generally permitted for most assets if indicators improve (though not for goodwill) – a potential divergence depending on classification
The underlying PRINCIPLE – match cost recognition to the pattern of economic benefit consumption – is broadly SHARED, but ASC 926 provides a far more SPECIFIC, codified methodology (the ultimate revenue ratio) than IFRS's general intangible asset/inventory guidance offers for this industry.
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Statement Mapping
Where every ASC 926 event lands
EventStatement(s) affectedNotes
Film cost amortisationBS ISRecognised per the ultimate revenue ratio
Participations/residuals accrualBS ISAccrued using the same ratio methodology
ImpairmentBS ISWritten down to fair value, no subsequent reversal
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Related Topics
Cross-reference map
TopicConnection
ASC 835Supplies the interest capitalisation framework applied to production financing during the production period
ASC 928Entertainment–Music – shares similar royalty/participation accrual concepts
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Quick-Reference Glossary
Ultimate revenue
The total revenue an entity expects to recognise from a film over its entire useful life, subject to a maximum look-forward period, driving amortisation and participations accrual.
Individual-film-forecast method
The methodology amortising film costs in the same ratio that current-period revenue bears to estimated ultimate revenue.
Participations and residuals
Contingent compensation payable to talent based on a film's financial performance, or required under industry guild agreements for subsequent exhibition.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows