Suppose you are filmmaker George Lucas and you spent $11 million to produce Twentieth Century Fox’s film Star Wars. Over what period should the studio expense the cost?
Yes, it should expense the cost over the economic life of the film. But what is its economic life? You must estimate how much revenue you will earn from box office sales, video sales, television, and games and toys-a period that could be less than a year or more than 20 years, as is the case for Star Wars. Originally released in 1977, and rereleased in 1997, domestic revenues total over $500 million for Star Wars and continue to grow.
? What accounting principle does this example illustrate? How will financial results be affected if the expenses are recognized over a period that is less than that used for revenues? How will financial results be affected if the expenses are recognized over a period that is longer than that used for revenues?