(Applying accounting assumptions, qualitative characteristics, and measurement conventions, LO 2, 3, 4) Live Theatre Productions Ltd. (LITPL) produces major theatrical productions in major centres across Canada. Usually LTPL selects shows that have had or are having successful runs in the United States or in Europe, and then mounts Canadian productions of the show. Most productions that are successful outside of Canada do well in Canada, but this is not always the case.

It can take well over a year from the time LTPL decides to put on a show to the first performance. Many costs must be incurred before the show is ever performed, including purchasing the rights to the show, paying performers and other personnel, creating costumes and sets, holding rehearsals, and so on. LTPL capitalizes all costs incurred before a show begins its run and classifies them as an asset on the company’s balance sheet. LTPL then amortizes these costs over the estimated life of the show.

Required:

Use the accounting assumptions, qualitative characteristics, and measurement conventions identified in this chapter to make a case for:

a. Capitalizing the costs incurred before a show begins and amortizing them over the estimated life of the show.

b. Expensing the costs as they are incurred, before a show begins.