13 MIAG Issue: 10
When is an impairment
review required?
An impairment test is performed when
an event or change in circumstance
indicates that the carrying amount of
unamortised film costs may exceed their
recoverable amount. The recoverable
amount is the higher of the estimated
fair value less costs to sell or value in use.
Any write-o is calculated as the
carrying amount by which unamortised
capitalised film costs exceed the
recoverable amount.
The impairment indicators can be
external or internal. Examples include:
•An adverse change on the expected
performance of a film prior to release
•Actual costs substantially in excess of
budgeted costs
•Substantial delays in completion or
release schedules
•Changes in release plans, such as a
reduction in the initial release pattern
•Insucient funding or resources to
complete the film and market
it eectively
•Actual performances subsequent to
release (e.g. poor box oce
performance or weak DVD sales) fails
to meet that which had been expected
prior to release
•Restrictions under media law aecting
the usability of films
The impairment test should be
performed at the individual asset level;
and where the recoverable amount
cannot be determined for an individual
asset, the test is done at the level of a
‘cash generating unit (‘CGU’). A CGU is
the smallest identifiable group of assets
that generates cash inflows largely
independent of the cash inflows from
other assets or group of assets.
We would expect that, in many cases, an
individual film will be the appropriate
level at which to assess the carrying
value. However, consideration should be
given to the level of interdependence of
revenue earned between films and with
other assets.
What cash flows should be
included in the recoverable
amount?
The recoverable amount of a film
represents its greatest value to the
producer in terms of the cash flows that
it can generate. That is the higher of:
• fair value less costs to sell (the amount
for which the asset could be sold in an
arm’s length transaction between
knowledgeable and willing parties, net
of estimated costs of disposal); and
• value in use (the present value of the
future cash flows that are expected to
be derived from the asset. The expected
future cash flows include those from
the film’s continued use by the company
over its useful economic life and based
on present value calculations).
The value in use methodology is usually
used to determine the impairment of
films, since it is easier to determine the
value to that film producer than its
hypothetical value to another.
The value in use represents the future
cash flows expected to be generated by
the film over its useful life discounted to
present value. IAS 36 requires that the
number of years included in the
discounted cash flow model is limited to
the remaining useful economic life of
the film, indicating that no terminal
value should be included.
Cash inflows should include all sources
of reasonably estimable revenues. Such
sources might include theatrical releases
in one market or multiple markets,
revenues associated with DVD sales (net
of reserves for anticipated sales
returns), licensing sales to broadcast,
release via digital platforms and
merchandising revenues from the sale
of consumer products.
Cash outflows generally include all
additional future distribution,
advertising, marketing, and other
exploitation costs as well as cash
flows associated with participations
and residuals.
The following also should be considered
in an evaluation of the nature and extent
of such cash flows.
•Cash inflow or outflows associated
with the film to date
•Historical experiences associated with
similar films
•Film reviews and observable
public perceptions
The cash flow projections require
management’s judgments which should
be based on realistic assumptions and
which should be applied consistently.
The cash flows should be based on the
most up-to-date budgets and forecasts
that have been formally approved
by management.
Can a producer restore all or a
portion of the film costs that
were written o in interim period
due to changes in a film’s
estimated net cash flows?
The film producer should assess at each
reporting date whether there is any
indication that any film cost impairment
recorded in a previous period either no
longer exists or has decreased.
If there is any such indication the film
producer should first estimate the
revised recoverable amount. The film
producer can then restore all or a
portion of the film costs and based on
Film cost impairment reviews