Wiley GAAP 2008

Concepts, Rules, and Examples

Accounting during the Prematurity Period

Before the first subscriber revenue is earned by the cable company, the beginning and end of the prematurity period must be established by management. This period generally will not exceed two years. Once the prematurity period has been established, it may not be changed except in extraordinary circumstances.

Separate accounting is required for any portion¹ of a cable television system that is in the prematurity period and that is distinct from the rest of the system. This distinction is made if the portion is characterized by a majority of the following differences:

Accountability (e.g., separate forecasts, budgets, etc.)

Investment decisions (e.g., separate ROI, breakeven, etc.)

Geographical (e.g., separate franchise area)

Mechanical (e.g., separate equipment)

Timing (e.g., separate inception of construction or marketing)

If the portion meets these requirements, it will be charged costs of the entire system only if these costs are directly traceable to that portion. Separate projections are also developed for that portion.

During the prematurity period, costs incurred for the plant are capitalized as usual. General and administrative expenses and subscriber‐related costs are considered period costs. Subscriber‐related costs are costs incurred to obtain and retain subscribers to the cable television system.

System costs that will benefit the cable system upon completion (e.g., programming costs), and that will ...