ASC 925: Film Production Costs Capitalization Journal Entries

Posted In | ASC Education | Gridlex Academy

The ASC 925 Film standard provides guidance on the accounting and reporting for film production and distribution companies. One of the key aspects of financial reporting in the film industry is the capitalization of film production costs. In this article, we will explore how film production costs are capitalized under the ASC 925 Film standard and explain the associated journal entries.

 

Understanding Film Production Costs Capitalization

Film production costs include all the direct costs associated with producing a film, such as script development, cast and crew salaries, set construction, and post-production editing. Under the ASC 925 Film standard, film production companies are required to capitalize these costs as an asset on the balance sheet. This capitalization occurs when the film is released, and the costs are subsequently amortized over the estimated useful life of the film or based on the film's revenue performance.

 

ASC 925 Film: Film Production Costs Capitalization Transaction

To illustrate film production costs capitalization, let's look at an example:

 

MovieCo produces a film with total production costs of $10 million. The film is completed and released within the reporting period.

 

Journal Entries for Film Production Costs Capitalization Transactions

The journal entries for film production costs capitalization under ASC 925 Film are as follows:

 

1. Recording the film production costs as they are incurred:

 

        Dr. Film Production Costs in Progress $10,000,000

• Cr. Various Expense Accounts (e.g., Salaries, Production Expenses, etc.) $10,000,000

 

2. Capitalizing the film production costs upon release:

 

        Dr. Completed Film Assets $10,000,000

• Cr. Film Production Costs in Progress $10,000,000

 

At this point, MovieCo has capitalized the $10 million in production costs as a completed film asset on its balance sheet.

 

3. Amortizing the film production costs:

Once the film is released, MovieCo must begin amortizing the production costs based on the film's revenue performance or its estimated useful life. For instance, if the film generates $2 million in revenue during the reporting period and is expected to earn a total of $10 million, the journal entry for amortization would be:

 

        Dr. Amortization Expense $2,000,000 (20% of the capitalized film production costs)

• Cr. Accumulated Amortization – Completed Film Assets $2,000,000
   

Capitalizing film production costs is a crucial aspect of financial reporting for film production and distribution companies. The ASC 925 Film standard provides guidance on the recognition and measurement of these costs, ensuring that they are presented accurately and consistently in financial statements. By understanding the journal entries for film production costs capitalization transactions, financial professionals and business owners in the film industry can better comprehend the impact of cost capitalization on their company's financial health.