Financial statements of Columbia Pictures include the f

Financial statements of Columbia
Pictures include the following note:
Inventories. The costs of feature films and television programs including production
advances to independent producers interest on production loans and distribution
advances to film licensors are amortized on bases designed to write off costs in proportion
to the expected flow of income.
The cost of general release feature productions is divided between theatrical ion and
television ion based on the proportion of net revenues expected to be derived from each
source. The portion of the cost of feature productions allocated to theatrical ion is amortized
generally by the application of tables which write off approximately 62% in
26 weeks 85% in 52 weeks and 100% in 104 weeks after release. Costs of two theatrical
productions first released on a reserved-seat basis are amortized in the proportion that
rentals earned bear to the estimated final theatrical and television rentals. Because of the
depressed market for the licensing of feature films to television and poor acceptance by
the public of a number of theatrical films released late in the year the company made a
special provision for additional amortization of recent releases and those not yet licensed
for television to reduce such films to their currently estimated net realizable values.
Required:
a. Identify the main determinants for valuation of feature films television programs and general release feature
productions by Columbia Pictures.
b. Are the bases of valuation reasonable? Explain.
c. Indicate additional information on inventory valuation that an unsecured lender to Columbia Pictures would wish to obtain and any analyses the lender would wish to conduct.
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