BIM56220 - Film and audio products: methods applying to all master versions: income matching method: examples
The income matching method can be expressed using the formula E = A x (B / (B + C)) where:
| E = | Expenditure deductible in the relevant period |
| A = | The total expenditure on producing or acquiring the master version of the film less any amounts already deducted in earlier relevant periods |
| B = | The gross amount of income from the film in the period |
| C = | The estimated future gross income from the film |
But note that where C = 0, E = A, even if B is also zero.
Example 1
A film is in the course of production in year 1 where
£2.5million of expenditure is incurred.
In year 2 the film is completed and further expenditure of
£1.5million is incurred, thus total expenditure on production
of the master version of the film is £4million (A).
In year 2 the film is released and generates income of
£3million (B) out of a total estimated income of
£8million, leaving estimated future gross income of
£5million (C).
In year 3 the film generates a further £2million (B) of
income but the total estimated income for the film is revised down
to £6million leaving future estimated income of £1million
(C).
In year 4 the film generates income of £1million. The
film is unlikely to generate more than a negligible amount of
income in future and it is accepted that for the purposes of
writing-off the expenditure the expected future income is nil.
Expenditure is written-off as follows:
| YEAR | A | B | C | E = A x (B / (B + C)) |
| 1 | £2.5million | nil | not forecast | nil |
| 2 | £4.0million | £3.0million | £5.0million | £1.5million |
| 3 | £2.5million | £2.0million | £1.0million | £1.67million |
| 4 | £833,333 | £1.0million | nil | £833,333 |
Example 2
If at any time the amount of unrelieved expenditure exceeds the
estimated future income from the film an additional amount up to
the excess may be deducted as well as the amount given by the
formula.
Thus, if in example 1 above the income in year 3 was
£800,000 and the estimated future income was £200,000 and
X is the excess of expenditure over future estimated income, the
amounts written off would be as follows:
| YEAR | A | B | C | E + X |
| 1 | £2.5million | nil | not forecast | nil |
| 2 | £4.0million | £3.0million | £5.0million | £1.5million |
| 3 | £2.5million | £800,000 | £200,000 | £2.3million |
| 4 | £200,000 | £200,000 | nil | £200,000 |
The £2.3 million written-off in year 3 comprises £2million written-off under the formula and an additional amount of £300,000 written-off as the excess of unrelieved expenditure over estimated future income.
