1) Inventory Valuation in Film Industry Financial statements of Columbia Pictures comprises following note: Inventories. Costs of feature films and television programs, interest on production loans, including production advances to independent producers, and distribution advances to film licensors, are amortized on bases designed to write off costs in proportion to expected flow of income. Cost of universal 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. Portion of cost of feature productions allocated to theatrical ion is amortized usually by application of tables which write off about 62% in 26 weeks, 85% in 52 weeks, and 100% in 104 weeks after release. Costs of two theatrical productions first released on reserved-seat basis are amortized in proportion which rentals earned bear to estimated final theatrical and television rentals. As of depressed market for licensing of feature films to television and poor acceptance by public of number of theatrical films released late in year, company made special provision for extra amortization of new releases and those not yet licensed for television to decrease such films to their presently estimated net realizable values.
Required:
a) Recognize the major determinants for valuation of television programs, feature films, and common release feature productions by Columbia Pictures.
b) Are bases of valuation reasonable? Describe.
c) Point to extra information on inventory valuation that the unsecured lender to Columbia Pictures would wish to get and any analyses lender would wish to conduct.