August 2012

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TAX____________________________________________________________

New Tangible Property Regulations Overview

FINANCIAL REPORTING____________________________________________________________

Proposed Guidance for Entertainment Companies Regarding the Use of Fair Value

Essential BriefingsQUALITATIVE ASSESSMENTS OF IMPAIRMENT FOR INTANGIBLE ASSETS ARE NOW CONSISTENT WITH GOODWILL

Contents

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ESSENTIAL BRIEFINGS2 QUALITAT IVE ASSESSMENTS OF IMPAIRMENT FOR

INTANGIBLE ASSE TS ARE NOW CONSISTENT WITH GOODWILLThe FASB has issued ASU No. 2012-02 Intangibles - Goodwill and Others (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment. The Standard amends the codification, allowing an option for companies to perform an initial assessment of qualitative factors in determining whether it is more likely than not that a non-goodwill indefinite-lived intangible is impaired.

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TAX4 NE W TANGIBLE PROPERT Y REGUL AT IONS OVERV IE W

Taxpayers who acquire, lease, produce or improve tangible property will be subject to the new temporary tangible property regulations (T.D. 9564) that was issued on December 23, 2011. The temporary regulations will affect all taxpayers with tangible property and will require accounting method changes.

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FINANCIAL REPORTING7 PROPOSED GUIDANCE FOR ENTERTAINMENT COMPANIES

REGARDING THE USE OF FA IR VALUEThe FASB issued Proposed Accounting Standards Update (ASU) No. EITF-12E, Entertainment–Films (Topic 926)–Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs (a consensus of the FASB Emerging Issues Task Force).

August 2012

1 | SingerLewak August 2012

E S S E N T I A L B R I E F I N G S

QUALITATIVE ASSESSMENTS OF IMPAIRMENT FOR INTANGIBLE ASSETS ARE NOW CONSISTENT WITH GOODWILLBY JIM PITRAT, CPA | MANAGING PARTNERjpitrat@singerlewak.com | 310.477.3924

SUMMARY OF THE STANDARD:

The FASB has issued ASU No. 2012-02 Intangibles—Goodwill and Others (Topic 350) — Test-ing Indefinite-Lived Intangible Assets for Impairment. The Stan-dard amends the codification, allowing an option for companies to perform an initial assessment of qualitative factors in determin-ing whether it is more likely than not that a non-goodwill indefi-nite-lived intangible is impaired. Under the standard, if, after performing the qualitative test, it is more likely than not that an impairment has occurred, com-panies are required to perform the quantitative impairment test currently required (i.e., compar-ing the asset’s fair value with its carrying amount). The standard is intended to make intangible asset impairment guidance con-sistent with goodwill impairment testing.

ANALYSIS:

ASU No. 2012-02 has amended FASB ASC Section 350-30-35,

Intangibles—Goodwill and Oth-ers—General Intangibles Other than Goodwill—Subsequent Measurement, with the following modifications (Note: for purposes of this guidance, More Likely than Not means a probability of greater than 50%):

•For indefinite lived intangible assets, Companies are allowed to perform an initial qualita-tive assessment to determine whether it is more likely than not the asset is impaired.

• If an indefinite lived intangible asset is determined to be more likely than not the asset im-paired, it is necessary to calcu-late the fair value of the asset

and compare it with the asset’s carrying amount.

•A company may elect not to perform the qualitative assess-ment for any indefinite-lived intangible for any period. If such a choice is made, the company must proceed directly to the quantitative impairment test (In these cases, the com-pany is still allowed to perform the qualitative assessment in respect of any such intangible in later periods).

•When making the qualitative assessment, companies must consider the “weight and sig-nificance of all relevant events and circumstances that could affect significant inputs used in determining the fair value” of an indefinite-lived intangible asset.

•This includes, (among others) the following items: - Macroeconomic conditions:

∙ Economy ∙ Access to capital ∙ Foreign exchange rates

August 2012 SingerLewak | 2

∙ Equity ∙ Credit markets

- Industry and market condi-tions ∙ The environment in which the entity operates

∙ Competition ∙ Demand for the entity’s products or services

∙ Market-dependent mul-tiples

- Legal, regulatory, contractu-al, political, business or other factors

- The costs of raw materials, la-bor, or other costs which may negatively impact earnings or cash flows

- Financial performance - Other Company-specific events, such as: ∙ Changes in management ∙ Changes in key personnel ∙ Strategy changes ∙ Changes or loss of custom-ers

∙ Litigation or bankruptcy

Under the standard, these events do not necessarily represent standalone evidence that an indefinite-lived intangible is more likely than not to be impaired, and that therefore the quantita-tive test must be performed.

•Companies should also con-sider the following factors when determining if it is more likely

than not that an impairment has occurred: - Positive and mitigating cir-cumstances and events

- The difference between fair value and the intangible as-set’s carrying amount based on a recent fair value calcula-tion

- Any actual changes in the asset’s carrying amount

•The existence of these potential positive factors does not repre-sent a rebuttable presumption that the fair value of the asset should not be calculated.

• If it is determined that it is more likely than not that the intangible asset is impaired, the company must determine if there is an impairment loss by calculating the asset’s fair value and comparing it with the as-set’s carrying amount.

• If it is not more likely than

not that the intangible asset is impaired, then calculation of the asset’s fair value is not necessary.

•An indefinite-lived intangible should be tested for impair-ment annually. - Indefinite lived intangible assets must be tested more frequently if events or chang-es in circumstances indicate potential impairment.

Additionally guidance has been amended to exempt nonpublic entities from the requirement to disclose quantitative information about significant unobservable inputs used in measuring the fair value of a Level 3 indefinite-lived intangible asset (subsequent to initial implementation).

EFFECTIVE DATE

The standard is applicable to both public and nonpublic enti-ties. It is effective for annual and interim impairment tests per-formed for fiscal years beginning after September 15, 2012. Early adoption permitted.

3 | SingerLewak August 2012

Under the standard, these events do not necessarily

represent standalone evidence that an indefinite-

lived intangible is more likely than not to be

impaired, and that therefore the quantitative test must be

performed

JIM PITRAT CAN BE REACHED AT JPITRAT@SINGERLEWAK.COM

OR 310.477.3924

August 2012 SingerLewak | 4

NEW TANGIBLE PROPERTY REGULATIONS OVERVIEW

Taxpayers who acquire, lease, produce or improve tangible property will be subject to the new temporary tangible property regulations (T.D. 9564) that was issued on December 23, 2011. The temporary regulations will affect all taxpayers with tangible property and will require ac-counting method changes. The temporary regulations are effec-tive for tax years beginning on or after January 1, 2012 and will expire in 2014.

The regulations provide a frame-work for assessing and determin-ing what costs can be currently deducted or need to be capital-ized. The following is a brief summary of the essential parts of the new regulations:

MATERIALS AND SUPPLIES

What constitutes materials and supplies have been newly defined and may be different from prior law that could result in treating certain office supplies as de-preciable property. Specifically, property with an acquisition or production cost of $100 or less can be deducted. In addition, there is clarity around the treat-ment of the following categories

of materials and supplies:

•Non-incidental materials and supplies are deductible when used or consumed.

• Incidental materials and sup-plies are deductible when purchased if no consumption records are maintained and physical inventory is per-formed.

•Rotable spare parts have differ-ent recovery rules for common spare parts used in virtually all industries.

ACQUISIT ION OF TANGIBLE PROPERTY

The regulations recognize a new de minimis expensing rule up to a threshold per entity. The deduc-tion must be less than or equal to the greater of:

•0.1% of the gross receipts for

the tax year for income tax purposes or

•2% of the total depreciation expense for the tax year.

However, specific guidelines such as expensing the purchase price for financial reporting purposes, having an applicable financial statement, and having a formal written capitalization policy which must be met before a tax-payer can take the deductions for tax purposes.

In addition, there are new bright line rules for certain costs that fa-cilitate an acquisition for real and personal property and safe harbor to expense employee compensa-tion and investigatory costs for real property.

IMPROVEMENTS TO TANGI-BLE PROPERTY

To determine whether to capital-ize or deduct improvements to tangible property, taxpayers must first determine the Unit of Prop-erty (“UOP”). The new regula-tions provide special UOP rules for buildings, plant property, and leased property. For a building, the unit of property consists of the building and its structural

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components. The unit of proper-ty for real and personal property, other than buildings, is defined to include all functionally inter-dependent components.

The new regulations provide the standard that must be applied to determine whether expenditures need to be capitalized. Improve-ments to a UOP must be capital-ized if it results in betterment, adapts the UOP to a new or different use or restoration. The below summarizes the regula-tions definition of betterments, adaptation to a new or different use and restorations:

•Betterments - ameliorates a ma-terial condition or defect; result in a material addition; or result in a material increase in capac-ity, productivity, efficiency,

strength or quality of the unit of property.

•Adaptation - new or different use results in the property being converted from one functional use to another functional use.

•Restoration - restores a unit of property to its ordinarily efficient operating condition from a state of non-functional disrepair; rebuilding a unit of property to a “like new” condition after the end of its class life; or replacement of a major component or substantial structural part of the unit of property.

There is also a safe harbor for certain routine maintenance costs for tangible property, other than buildings, that can be deducted rather than capitalized. The routine maintenance costs must be for recurring activities that the taxpayer expects to perform more than once over the life of the asset to keep the property in its ordinary, efficient operating condition.

The new regulations provide the standard that must be applied to determine whether expenditures need to be capitalized.

Improvements to a UOP must be capitalized if

it results in betterment, adapts the UOP to a new or different use or restoration.

August 2012 SingerLewak | 6

DISPOSIT IONS OF TANGIBLE PROPERTY

There are also some significant changes in the new regulations regarding the dispositions of property. The regulations now allow taxpayers to write off an old component if replaced with a capital improvement. This dif-fers significantly from the prior regulations since taxpayers were not allowed to claim partial dis-positions. In addition, taxpayers need to be aware that their basis in the property being disposed may be under or overstated due to conformity to the new UOP standards.

ADMINISTRATION AND IM-PLEMENTAT ION

On March 7, 2012, the IRS

issued Rev. Procs. 2012-19 and 2012-20 to provide guidance on filing accounting method chang-es to comply with the regula-tions. The changes in the regula-tions are complex and require examination of individual tax-payer’s facts and circumstances. Please consult with one of our tax

professionals to review your facts so that your capitalization and expensing policies are in align-ment with the new temporary tangible property regulations.

The regulations now allow taxpayers to write off an old component if replaced with a capital improvement. This

differs significantly from the prior regulations since taxpayers were not allowed to claim partial dispositions.

QUESTIONS? CONTACT OUR TAX DEPARTMENT BY CALLING

877.754.4557

7 | SingerLewak August 2012

PROPOSED GUIDANCE FOR ENTERTAINMENT COMPANIES REGARDING THE USE OF FAIR VALUEBY JIM PITRAT, CPA | MANAGING PARTNERjpitrat@singerlewak.com | 310.477.3924

INTRODUCTION AND SUMMARY:

The FASB issued Proposed Accounting Standards Up-date (ASU) No. EITF-12E, Entertainment–Films (Topic 926)–Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclu-sion in the Impairment Analysis of Unamortized Film Costs (a consensus of the FASB Emerging Issues Task Force). The proposal would more closely align the requirements of fair value mea-surements with rules regarding unamortized film costs. Specifi-cally the proposal impacts rules regarding the use of fair value information that arises during the period between the date of the financial statements and the date of their issuance. In particu-lar, the proposed Standard would resolve conflicting guidance by amending FASB ASC 926 to eliminate the rebuttable pre-sumption that events occurring after the date of the balance sheet existed at the measurement date.

PROPOSED GUIDANCE AND ANALYSIS:

Under the current guidance sur-rounding film costs, the follow-ing requirements exist:

If evidence of a potential need for a write-down of unamortized film costs arises after the balance sheet date but prior to issuance of the financial statements, there is a rebuttable presumption that the conditions leading to the write-down existed at the date of the balance sheet.

Thus, such conditions must be incorporated into the fair value measurement used in the test for impairment applied as of the bal-ance sheet date.

Under the current guidance sur-rounding fair value measures, the following requirements exist:

Calculation of an exit price under current market conditions is re-quired at the measurement date.

This creates a conflict between Film Cost accounting and fair value measurements require-ments.

F I N A N C I A L R E P O R T I N G

The proposal would more closely align the

requirements of fair value measurements with rules regarding unamortized

film costs. Specifically the proposal impacts rules

regarding the use of fair value information that arises during the period between the date of the

financial statements and the date of their issuance.

•The Proposed Accounting Standards Update (ASU) No. EITF-12E, Entertainment–Films (Topic 926)–Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unam-ortized Film Costs (a consensus of the FASB Emerging Issues Task Force), would resolve these inconsistencies, by doing the following:

•Eliminating the rebuttable presumption that evidence of conditions leading to the write-down of unamortized film costs arising between the date of the financial statements and the date of their issuance ex-isted at the measurement date.

•Generally, eliminating the requirement that evidence arising during the intervening period be incorporated into fair value measurements used in

the impairment tests, unless it would have impacted market participant’s evaluation at the measurement date.

Companies would still have the responsibility to assess whether subsequent information and events reflect relevant informa-tion and assumptions that market participants would have consid-ered at the measurement date.

EFFECTIVE DATE, TRANSIT ION AND COMMENT DEADLINE:

The proposed amendments would be applied to impairment tests performed after initial adop-tion of the final ASU.

Early adoption would be per-mitted for public entities whose financial statements for the most recent annual or interim period have not been issued, and for nonpublic entities whose finan-cial statements have not been made available for issuance.

The comment deadline is July 16, 2012.

Companies would still have the responsibility to assess whether subsequent information and events

reflect relevant information and assumptions that

market participants would have considered at the

measurement date.

August 2012 SingerLewak | 8

JIM PITRAT CAN BE REACHED AT JPITRAT@SINGERLEWAK.COM

OR 310.477.3924

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