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Price, Waterhouse & Company accountants
Accounting — For Expenditures for Sound Reproducing Equipment under Lease Contract. Auditors for several theater operating companies had to determine the proper accounting procedure for expenditures for electrical sound reproducing equipment, which typically was leased under a non-exclusive, non-assignable license for a period of 10 years, with an initial payment of 25% of the license fee at the time of installation and the balance, together with carrying and service inspection charges, to be paid weekly. The accountants recommended that the full amount of the license fee be set up as an asset with a liability of corresponding amount to the licensor, and that the cost be amortized over a term of five years. That portion of the weekly payments representing carrying, service, and inspection charges was to be considered as expense as paid, and all repairs and replacements were to be charged off currently.
• (1929)
With the advent of motion pictures synchronized with sound, a number of problems arose as to the accounting procedure a theater should follow in the treatment of expenditures made for electrical sound reproducing equipment. Price, Waterhouse & Company, as auditors for several theater operating companies, mostly large chain theater corporations, made a study of the situation to determine the proper accounting procedure.
Under the terms of the agreements offered by one of the foremost licensors of this type of equipment, an exhibitor was granted a non-exclusive, non-assignable license for the use of sound equipment in his theater for a period of 10 years, the title and ownership of the equipment remaining vested in the licensor. Upon termination of the license, it was specified that the equipment should be returned to the licensor in good order and condition, allowing for reasonable wear and tear and for obsolescence. By the terms of the lease, the exhibitor made an initial payment plus weekly payments during the term of the license.
As a specific example, an exhibitor agreed to pay an initial charge of $3,262.50, which was 25% of the total license fee,
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