ASC 920: Program Licensing Journal Entries for Broadcasters

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Accounting Standards Codification (ASC) Topic 920, "Entertainment - Broadcasters," provides guidance on accounting for program licensing transactions in the broadcasting industry. Broadcasters often acquire licenses to air television programs, movies, and other content from content producers or distributors. Proper accounting for program licensing transactions is essential to reflect the broadcaster's financial position and performance accurately. This article will explain the concept of program licensing transactions under ASC 920 and provide examples of journal entries that illustrate the proper accounting treatment for these transactions.

 

Program Licensing Transaction

A program licensing transaction occurs when a broadcaster acquires the rights to air content, such as television programs or movies, for a specified period or a certain number of showings. The cost of the license, also known as the program license fee, is usually recognized as an asset on the broadcaster's balance sheet and amortized over the period or number of showings for which the rights were granted. Under ASC 920, broadcasters are required to classify licensed programs as either broadcast or non-broadcast programs. Broadcast programs are those that are expected to generate revenue from advertising, while non-broadcast programs are those that generate revenue from sources other than advertising, such as subscription fees or pay-per-view charges. The accounting treatment for program licensing transactions depends on the classification of the program.

 

Journal Entries for Program Licensing Transaction

To better understand the accounting treatment for program licensing transactions, let's look at a hypothetical example.

 

Example:

Broadcaster K acquires a license to air a television series for a total cost of $3 million. The license grants the right to air the series for three years or 60 showings, whichever comes first. The television series is classified as a broadcast program.

 

Journal Entry 1: Record the acquisition of the program license

Broadcaster K would record the initial acquisition of the program license as follows:
 

Debit: Program License Asset $3 million

Credit: Cash $3 million
 

The debit to program license asset represents the cost of the license, while the credit to cash represents the cash outflow for the purchase.
 

Journal Entry 2: Record the amortization of the program license

Next, Broadcaster K would calculate the amortization expense for each showing:
 

Amortization expense per showing = Program license cost / Number of showings

Amortization expense per showing = $3 million / 60 showings

Amortization expense per showing = $50,000

 

After each showing, Broadcaster K would record the amortization expense as follows:
 

Debit: Amortization Expense $50,000

Credit: Accumulated Amortization - Program License Asset $50,000

 

The debit to amortization expense represents the amortization expense for each showing, which is recognized in the income statement. The credit to accumulated amortization - program license asset reflects the accumulated amortization on the program license asset, which is presented as a contra-asset account in the balance sheet.

ASC 920 provides guidance on accounting for program licensing transactions in the broadcasting industry, ensuring that broadcasters accurately allocate the cost of program licenses over the period or number of showings for which the rights were granted. By following the principles outlined in ASC 920, broadcasters can properly account for program licensing transactions and provide useful information to investors and other stakeholders. It is essential for accountants and financial professionals to understand and apply the principles of ASC 920 when dealing with program licensing transactions in the broadcasting industry in order to maintain compliance with accounting standards and provide accurate financial information to stakeholders.