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Wiley GAAP 2008 by Colorado Steven M. Bragg Englewood, Ralph Nach American Express Tax and Business Inc., Barry J. Epstein

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Concepts, Rules, and Examples

Accounting for License Agreements

A broadcaster accounts for a license agreement for program material as a purchase of rights. Thus, an asset and a liability are recorded for the program rights purchased and the liability incurred when the license period begins and the broadcaster has met the following requirements:

  1. Knows or can reasonably determine the cost of each program

  2. Has accepted the program material according to the license agreement

  3. Has access to the program for the first telecast (unless an agreement with another licensee prevents the telecast)

The asset is capitalized and the liability reported at either the gross amount of the liability for program rights or, alternatively, at the fair value of the liability. If a present value technique is used to measure fair value, the difference between the gross and net liability must be accounted for as interest. Under either method, the capitalized costs are allocated to each program within a package based on the relative value of each program to the broadcaster.

The asset is separated into current and noncurrent portions based on expected time of program usage. The liability is likewise segregated according to the payment maturities.

Amortizing Capitalized Costs

The capitalized costs are amortized to expense as the program rights are used; generally based on the estimated number of program telecasts. However, licenses granting the right to unlimited broadcasts of programs such as cartoons are amortized ...

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