Twenty-First Century Fox 2011 Annual Report Download - page 48

Notes to the Consolidated Financial Statements (continued)
Financial instruments
The carrying value of the Company’s financial instruments, including cash and cash equivalents and cost investments, approximate fair value.
The fair value of financial instruments is generally determined by reference to market values resulting from trading on a national securities
exchange or in an over-the-counter market. Derivative instruments embedded in other contracts, such as convertible debt securities and
exchangeable securities, are separated into their host and derivative financial instrument components. The derivative component is recorded at its
estimated fair value in the consolidated balance sheets with changes in estimated fair value recorded in Other, net in the consolidated statements of
operations.
Guarantees
The Company follows ASC 460, “Guarantees” (“ASC 460”). ASC 460 requires a guarantor to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing certain guarantees.
Revenue recognition
Revenue is recognized when persuasive evidence of an arrangement exists, the fees are fixed or determinable, the product or service has been
delivered and collectability is reasonably assured. The Company considers the terms of each arrangement to determine the appropriate accounting
treatment.
Television, Cable Network Programming and DBS:
Advertising revenue is recognized as the commercials are aired. Subscriber fees received from cable systems and DBS operators for cable
network programming are recognized as revenue in the period services are provided. DBS subscription and pay-per-view revenues are recognized
when programming is broadcast to subscribers, while fees for equipment rental are recognized as revenue on a straight-line basis over the contract
period.
The Company classifies the amortization of cable distribution investments (capitalized fees paid to a cable or DBS operator to facilitate the
launch of a cable network) against revenue in accordance with ASC 605-50, “Revenue Recognition – Customer Payments and Incentives” (“ASC
605-50”). The Company defers the cable distribution investments and amortizes the amounts on a straight-line basis over the contract period.
Filmed Entertainment:
Revenues are recognized in accordance with ASC 926. Revenues from the distribution of motion pictures are recognized as they are exhibited,
and revenues from home entertainment sales, net of a reserve for estimated returns, are recognized on the date that DVD and Blu-ray units are
made available for sale by retailers and all Company-imposed restrictions on the sale of DVD and Blu-ray units have expired.
License agreements for the broadcast of theatrical and television product in the broadcast network, syndicated television and cable television
markets are routinely entered into in advance of their available date for broadcast. Cash received and amounts billed in connection with such
contractual rights for which revenue is not yet recognizable is classified as deferred revenue. Because deferred revenue generally relates to contracts
for the licensing of theatrical and television products which have already been produced, the recognition of revenue for such completed product is
principally only dependent upon the commencement of the availability period for broadcast under the terms of the related licensing agreement.
Publishing
Advertising revenue from newspapers and integrated marketing services is recognized when the advertisements are published. Subscription
revenues from the Company’s print and online publications and electronic information services is recognized as earned, pro rata on a per-issue
basis, over the subscription period. Revenues earned from book publishing are recognized upon passing of control to the buyer.
Sales returns
Consistent with industry practice, certain of the Company’s products, such as home entertainment products, books and newspapers, are sold
with the right of return. The Company records, as a reduction of revenue, the estimated impact of such returns. In determining the estimate of
product sales that will be returned, management analyzes historical returns, current economic trends and changes in customer demand and
acceptance of the Company’s product. Based on this information, management reserves a percentage of each dollar of product sales that provide
the customer with the right of return.
Multiple Element Arrangements
Revenues or costs derived from contracts that contain multiple products and services are allocated based on the relative fair value of each
delivered or purchased item. Each product or service being delivered or purchased, is accounted for separately, based on the relevant revenue or
cost recognition accounting policies.
On July 1, 2010, the Company adopted Accounting Standards Update (“ASU”) 2009-13, “Multiple-Deliverable Revenue Arrangements”
(“ASU 2009-13”). ASU 2009-13 revises the criteria for separating and allocating consideration for each deliverable in a multiple-deliverable
arrangement and establishes a hierarchy for determining the selling price of each deliverable. Under the guidance, revenues are allocated based on
the relative selling price of each deliverable. The selling price used for each deliverable is based on the Company-specific objective evidence if
available, third party evidence if Company-specific evidence is not available, or estimated selling price for the stand-alone sale of the deliverable if
neither Company-specific objective evidence nor third party evidence is available. The adoption of ASU 2009-13 did not have a material effect on
the Company’s consolidated financial statements.
46 News Corporation