ASC 926: Film Cost Capitalization, Amortization, and Impairment

ASC 926 governs how a company producing or acquiring films and episodic television content accounts for those costs under U.S. GAAP. The short version of film cost accounting under ASC 926: direct production costs sit on the balance sheet as a film asset, each film (or series) is amortized separately using the individual-film-forecast method tied to estimated ultimate revenue, and the asset is tested for impairment against fair value whenever performance or circumstances suggest a decline. The framework exists because film economics don’t fit ordinary matching: costs land up front, revenue arrives over years through channels no one can fully predict at release.

The standard applies to any U.S. entity preparing GAAP financial statements that produces or distributes films, television specials, television series, or similar products, regardless of the recording format. Since ASU 2019-02 took full effect, episodic television follows the same capitalization rules as films, and multiple seasons of a series are treated as a single product for amortization.¹

What Costs Get Capitalized

Film production costs are recorded as an asset. The cost basis includes all direct costs incurred in the physical production of the film, which the codification calls direct negative costs:¹

Talent compensation, including salaries for actors, directors, producers, extras, and crew.
Physical production costs such as set construction and operations, wardrobe, props, accessories, location rentals, and equipment.
Post-production costs including editing, sound synchronization, special effects, and music.
Story acquisition, including story rights and screenplays.

Production overhead gets allocated to the film asset when it directly relates to production activity. Depreciation on sound stages, utilities for production facilities, and salaries of production supervisors all qualify. Capitalized interest under ASC 835 may also be included. General and administrative expenses do not qualify. Corporate office rent, the CEO’s salary, and legal fees unrelated to the production are expensed in the period incurred.

The Pre-Production Boundary

Not every dollar spent before principal photography gets capitalized. Costs incurred before management formally commits to a specific project are expensed as incurred. General story research, exploratory concept development, and creative department overhead fall on the expense side. Once the project is greenlit and management commits to moving forward, subsequent development spending shifts into the film asset. Story rights, screenplay drafts, and initial talent commitments made to secure the production all become part of the cost basis from that point on.

Participations and Residuals

Participation costs are contractual payments to talent or producers based on a share of the film’s revenue or profits. Residuals are payments to guilds and unions for reuse in different distribution windows. If these payments are expected over the film’s revenue-earning life, they get accrued and included in the film’s cost basis, and the estimates feed directly into the amortization and fair value calculations.¹ Errors here distort both the carrying value of the asset and the amortization expense in any given period.

Estimating Ultimate Revenue

Everything downstream in ASC 926 depends on one estimate: ultimate revenue. This is the total gross revenue the film is expected to generate over its useful life from all sources — theatrical, home video, digital, streaming licenses, television licensing, and ancillary sources like merchandising tied directly to the film.

Management sets the estimate at release and updates it at every reporting date. A surprise streaming hit, a weak theatrical run, or a new international deal all force revisions. The standard caps how far out you can project:¹

Standard films: up to 10 years from initial release.
Episodic television series: up to 10 years from delivery of the first episode, or 5 years from delivery of the most recent episode if the series is still in production, whichever is later.
Film library acquisitions: up to 20 years from the acquisition date, but only for films whose initial release was at least three years before the acquisition.

Revenue estimates may not include expected wholesale promotional or advertising reimbursements from third parties. Those amounts offset exploitation costs instead.¹ If ultimate revenue is off, so is everything the amortization and impairment tests produce.

Amortization Using the Individual-Film-Forecast Method

ASC 926 requires the individual-film-forecast-computation method. Each film is calculated separately, with no pooling, though multiple seasons of an episodic series count as a single product.¹

The formula: take the current period’s actual revenue as a fraction of estimated remaining unrecognized ultimate revenue as of the beginning of the fiscal year, then multiply that fraction by the unamortized film costs as of the beginning of the fiscal year. The result is the period’s amortization expense. Amortization begins when the film is released and starts generating revenue.¹

The denominator is remaining ultimate revenue, not total ultimate revenue from inception. That design produces a constant rate of profit over the film’s revenue-earning life rather than a declining one. A film that earns a large share of its remaining expected revenue in a single quarter will see a correspondingly large amortization charge that quarter.

Revising the Estimate

Ultimate revenue estimates almost always change. When they do, the entity recalculates using a new denominator that includes only ultimate revenue from the beginning of the fiscal year in which the change occurs. The numerator (current-year revenue) stays the same. The revised fraction is applied to the unamortized cost balance as of the beginning of the year, and the difference between the newly calculated expense and any amounts already expensed that year is recognized as an adjustment.¹

These adjustments are prospective. Prior-period statements stay as originally reported. A downward revision typically triggers a large catch-up expense in the current period, because the same costs now absorb into a smaller revenue base. An upward revision spreads remaining costs over a larger base and slows amortization going forward.

Films Monetized in Groups

When a film is predominantly monetized alongside other films or licensed content, such as within a streaming library, the entity estimates the portion of unamortized costs attributable to that film’s use in exhibition or exploitation and expenses that portion as the film is exhibited.¹ The film group, defined as the lowest level at which cash flows are largely independent, becomes the unit of account for impairment testing on those films.

Distribution and Exploitation Costs Are Expensed

Exploitation costs cover advertising, marketing, publicity, promotion, and physical distribution. These are generally expensed as incurred rather than capitalized, because they drive current-period revenue and do not create a long-lived asset. Production costs sit on the balance sheet and amortize over years; the marketing spend to launch a film typically hits the income statement immediately.

If a film has been written off through impairment, subsequent exploitation costs are still expensed as incurred. Spending more on marketing after an impairment does not rebuild the asset.

Impairment Testing

ASC 926 requires impairment testing whenever events or changes in circumstances suggest that the fair value of a film has dropped below its unamortized cost. Common triggers include a weak theatrical opening, the loss of a major distribution contract, a shift in audience demand, or a talent dispute that delays release.

The test compares the film’s unamortized cost to its fair value. For a film monetized on its own, fair value estimation involves projecting future cash inflows and subtracting the cash outflows necessary to generate them, including remaining distribution costs, exploitation expenses, and unaccrued participation and residual payments. A discounted cash flow model is permitted.¹

If fair value is below unamortized cost, the difference is recognized as an impairment loss in the current period. The film is written down to fair value, which becomes the new cost basis for future amortization. For films in a film group, the test happens at the group level rather than the individual-film level.¹

A film that is substantively abandoned, meaning the entity has no plans to complete or exploit it, must be written off entirely.¹

Once recognized, an impairment loss cannot be reversed. Even if the film later outperforms revised expectations, the write-down is permanent. Improved performance only affects future amortization by slowing the rate at which the reduced cost basis is expensed.²

Balance Sheet Presentation and Disclosures

Film costs must appear as a separate asset on the balance sheet, not lumped in with inventory, goodwill, or other intangibles. If the entity also holds rights acquired under program-material license agreements under ASC 920-350, those must be presented separately from produced film costs, either on the face of the balance sheet or in the notes.¹

Footnote disclosures under ASC 926-20 are specific. Entities must disclose the methods used to compute amortization of film costs, the unit of account used for impairment testing, and the methods used to determine fair value. When an impairment is recognized, the notes must describe the circumstances that led to it, the aggregate impairment amount, where it appears on the income statement, and which operating segments are affected. These disclosures apply in every period where film costs appear on the balance sheet or where an impairment is recorded.²

ASC 926 is a book accounting framework. Federal tax treatment of production costs runs on a different track, with its own elections and limitations under IRC Sections 181 and 168(k), and the two systems will produce different numbers in the same year.

1
PwC Viewpoint. Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20)
2
Deloitte Accounting Research Tool. ASC 926, Entertainment — Films