Twenty-First Century Fox 2008 Annual Report Download - page 87

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Notes to the Consolidated Financial Statements (continued)
Receivables, net
Receivables, net are presented net of an allowance for returns and doubtful accounts, which is an estimate of amounts that may not be collectible.
In determining the allowance for returns, management analyzes historical returns, current economic trends and changes in customer demand and
acceptance of the Company’s products. Based on this information, management reserves a percentage of each dollar of product sales that provide
the customer with the right of return. The allowance for doubtful accounts is estimated based on historical experience, receivable aging, current
economic trends, and specific identification of certain receivables that are at risk of not being paid. Receivables, net consist of:
2008 2007
At June 30, (in millions)
Total Receivables $ 8,538 $ 7,381
Allowances for returns and doubtful accounts (1,089) (1,102)
Total receivables, net 7,449 6,279
Less: current receivables, net 6,985 5,842
Non-current receivables, net $ 464 $ 437
Inventories
Filmed Entertainment Costs:
In accordance with Statement of Position (“SOP”) No. 00-2, “Accounting by Producers or Distributors of Films” (“SOP 00-2”), Filmed
entertainment costs include capitalized production costs, overhead and capitalized interest costs, net of any amounts received from outside
investors. These costs, as well as participations and talent residuals, are recognized as operating expenses on an individual film or network series
basis in the ratio that fiscal 2008’s gross revenues bear to management’s estimate of total remaining ultimate gross revenues. Television
production costs incurred in excess of the amount of revenue contracted for each episode in the initial market are expensed as incurred on an
episode by episode basis. Estimates for initial syndication and basic cable revenues are not included in the estimated lifetime revenues of network
series until such sales are probable. Television production costs incurred subsequent to the establishment of secondary markets are capitalized
and amortized. Marketing costs and development costs under term deals are charged as operating expenses as incurred. Development costs for
projects not produced are written-off at the earlier of the time the decision is taken not to develop the story or after three years.
Filmed entertainment costs are stated at the lower of unamortized cost or estimated fair value on an individual motion picture or television
product basis. Revenue forecasts for both motion pictures and television products are continually reviewed by management and revised when
warranted by changing conditions. When estimates of total revenues and other events or changes in circumstances indicate that a motion picture
or television production has a fair value that is less than its unamortized cost, a loss is recognized currently for the amount by which the
unamortized cost exceeds the film or television production’s fair value.
Programming Costs:
In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 63, “Financial Reporting by Broadcasters,” costs incurred in
acquiring program rights or producing programs for the Television, DBS and Cable Network Programming segments are capitalized and amortized
over the license period or projected useful life of the programming. Program rights and the related liabilities are recorded at the gross amount of
the liabilities when the license period has begun, the cost of the program is determinable and the program is accepted and available for airing.
Television broadcast network and original cable programming are amortized on an accelerated basis. The Company has single and multi-year
contracts for broadcast rights of programs and sporting events. At the inception of these contracts and at least annually, the Company evaluates
the recoverability of the costs associated therewith, using aggregate estimated advertising revenues directly associated with the program material
and related expenses. Where an evaluation indicates that a multi-year contract will result in an ultimate loss, additional amortization is provided
to currently recognize that loss. The costs of national sports contracts at FOX and for international sports rights agreements are charged to
expense based on the ratio of each period’s operating profits to estimated total remaining operating profit of the contract. Estimates of total
operating profit can change and accordingly, are reviewed periodically and amortization is adjusted as necessary. Such changes in the future could
be material.
The costs of local and regional sports contracts for a specified number of events, are amortized on an event-by-event basis while costs for
local and regional sports contracts for a specified season, are amortized over the season on a straight-line basis.
Inventories for other divisions are valued at the lower of cost or net realizable value. Cost is primarily determined by the first in first out
average cost method or by specific identification.
Investments
Investments in and advances to equity or joint ventures in which the Company has significant influence, but less than a controlling voting interest,
are accounted for using the equity method. Significant influence is generally presumed to exist when the Company owns an interest of
approximately 20% to 50% and exercises significant influence. In certain circumstances, investments for which the Company owns more than 50%
but does not control policy decisions, would be accounted for by the equity method.
86 NEWSCORP 2008 Annual Report