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Media and entertainment includes a variety of products that entertains or keeps informed a daily consumer. The industry is segmented into radio, television, radio broadcasting, etc. The competition in the media and entertainment space is increasing day by day. To be on the top or even to survive in this highly competitive market one has to be very efficient in managing the information systems. In 2005 Reliance ventured into this space and quickly adopted the standards required to survive in this market. The year 2005 saw the entry of new players across all segments of the E&M industry. Reliance made its way into entertainment by buying out 'Adlabs' and also acquired a radio station known as BIG FM 92.7after bidding for 50 FM radio stations across with aggregate bids of over INR 1.5 billion. In this M&E industry one cannot forget the role of finance and accounting in the success path of these companies. Finance and accounting should be very efficient so that there are no statistical errors/delays.
Most companies that fail in this industry have no or have a weak information system for finance and accounting system. Finance holds the key for company's success. Reliance Media works adopted a very good MIS as soon as it entered the space. It implemented a 'SAP' made MIS and quickly got the positive results of using it.
Finance and Accounting
Relationship to Accounting: There is very little difference between finance and accounting. Both fall under the jurisdiction of chief financial officer who uses a particular MIS to serve the purpose of both.
The difference lies in the sense that in finance the purpose is to maximize the profit whereas the purpose of accounting is score keeping so that a base for tax payment is prepared.
A financial manager analyses the raw data (provided by the accountant about the company's past, present and future) as inputs to MIS for making important decisions.
Accounting is not concerned with cash flows. It is just based on the recognized revenues when sale occurs. Finance is only concerned to cash flows. The magnitude, timing and risk of cash flows are the focus of finance manager.
Finance involves decision making under uncertain conditions and is concerned with future whereas accounting is concerned with the past records.
WHY MIS IS USED?
Large organizations have a lot of information. This collection of data cannot be of any use if it is not streamlined so that data can be retrieved easily.
MIS would help in controlling, tracking and monitoring of data.
Segregation of data into modules would result in faster decision making.
Would help in going paper free.
Use of MIS would ensure the result as per the expectation and analysis of data would be done easily.
SAP FOR FINANCE IN MEDIA AND ENTERTAINMENT
Reliance Mediaworks uses SAP for serving its financial problems. SAP for Media provides tailored solutions to keep up with rapid changes driven by the Internet, online publishing, and digital broadcasting.
SAP FOR Reliance mediaworks
The functions of SAP for Reliance Mediaworks are as follows-:
License acquisition and outgoing royalties - Reports on accurate royalty statements are prepared using SAP.
Core accounting and reporting capabilities
Financial supply chain management
Supply Chain Management
SAP for Media solutions enable a range of key processes for license acquisition and outgoing royalties, including:
License acquisition contract processing - SAP for Media solutions support the rendering and recording of agreements and contracts with various licensors regarding the type and number of rights or services, and the participation (royalties).
Rights clearance - SAP for Media solutions give you a complete overview of all IP rights and the associated contract, release, and rights availability information.
Outgoing royalties settlement - With SAP for Media solutions, you can settle outgoing royalties on the basis of revenues achieved and according to the agreements in the license acquisition contracts, taking into account any advances and minimum guarantees paid.
License acquisition contract analysis - With SAP for Media solutions, you can analyze the business transactions for license acquisition to determine the success achieved in various markets.
SAP Intellectual Property Management helps in applications for royalties.
License sales and incoming royalties - Support collaboration between licensees and your company - from contract negotiations to the collection of incoming royalty payments - to reduce the manual handling of contracts and ensure accurate royalty statements.
The Business Process of License Sales and Incoming Royalties
SAP for Media solutions support a variety of key processes for license sales and incoming royalties, including:
Rights availability analysis - With SAP for Media solutions, you can display an overview of IP rights, using search criteria such as rights freely available to be sold or sales contracts in which specific rights have already been assigned. The rights availability analysis can serve as a type of rights inventory management.
License sales contract processing - SAP for Media solutions enable you to sell rights to a licensee, controlling the transfer of rights against fixed or variable fees in license sales contracts, while the monetary implications of the sale (such as the profitability analysis) are transferred to SAP accounting software.
Rights usage confirmation - SAP for Media supports the sales of rights against variable license fees, based on the licensee's success from exploiting the right. With SAP software, the data on revenues and rights exploitation costs reported by a licensee are entered in the license usage confirmation and automatically assigned to the sales contract for specific periods, then accounted for during billing for incoming royalties in accordance with the arrangements in the contract.
Incoming royalties billing - With SAP for Media solutions, you can bill license revenues on schedule, on the basis of the licensee's usage data - and recoup any existing advances and minimum guarantees automatically - when you make agreements on the transfer of rights against fixed or variable license fees.
Contract revision - With SAP for Media solutions, you can make subsequent changes to license sales contract items that have already been released, retroactively or non-retroactively, during the entire life cycle of a license sales contract.
License sales contract analysis (by title) - You can use SAP solutions to analyze business transactions for licensing with regard to the success achieved in various markets.
License sales and incoming royalties is enabled with SAP applications such as SAP Intellectual Property Management.
By title financial accounting - Support the valuation and reporting of inventory according to different regulations in up to three currencies or valuations.
Manage by title financial accounting:-
General ledger - It is a collection of accounts used to record and classify all financial transactions as asset, liability, revenue, or expense. External accounting and accounts are managed by SAP solutions.
Classified by type into one of the following categories:
Assets examples of asset accounts include cash, accounts receivable, inventory, land, buildings, equipment and investments.
Liabilities examples of liability accounts include accounts payable and long term debt.
Retained Earnings the cumulative "life-to-date" total of all annual surpluses and deficits over the years.
Revenue examples of revenue accounts
Expense examples of expense accounts include salaries and wages, depreciation, interest expense etc.
Receivable accounts-: Managing a list of receivable accounts can be very tedious if done manually. This problem is solved using SAP which records and manages such accounts.
Payable accounts-: Just as we have receivable accounts to record the income so also a record should be maintained for the outgoing payments that are to be made.
Taxation-: Calculation of taxes (sales and purchases) and reporting of the same is easily done using SAP.
Income-tax expense comprises current tax expense computed in accordance with the relevant provisions of the Income tax Act, 1961 and deferred tax charge or credit.
Current tax provision is made based on the tax liability computed after considering tax allowances and exemptions, in accordance with the Income tax Act, 1961. Deferred tax charge or credit and the corresponding deferred tax liability or asset is recognised for timing differences between the profits / losses offered for income taxes and profits / losses as per the financial statements. Deferred tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date.
Provision for fringe benefit tax was made on the basis of applicable rates on the taxable value of eligible expenses of the Company as prescribed under the Income Tax Act, 1961 till 31 March 2009 on the basis of applicability. Entertainment tax is also levied as a form of tax.
Accrual accounting-: Accrual means recording revenue or cost as soon as they are earned and not wait for the time when they would be settled. SAP helps in managing payable and receivable accounts according to accrual accounting.
The various cost/expense of the company include-:
Cost can defined as outflows from the company.
Salaries, wages, bonuses, PPF, staff welfare expenses
Advertisement, bank charges, rent, insurance, labour charges, loss on sale, bad debts, printing and communication, other miscellaneous expenses.
Other costs include interest payment on the loans, financial charges etc.
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured.
Advertisement / sponsorship revenue
Revenue from advertisements, sponsorship and events is recognised on the date of the exhibition of the advertisement / event, over the period of the contract or on completion of the Company's obligations, as applicable.
Film production and related income
Revenue from sale of content / motion pictures is accounted for on the date of agreement to assign / sell the rights in the concerned motion picture / content or on the date of release of the content / movie, whichever is later.
Income from film distribution activity
In case of distribution rights of motion pictures / content, revenue is recognised on the date of release / exhibition.
Revenue from other rights such as satellite rights, overseas rights, music rights, video rights, etc. is recognised on the date when the rights are made available to the assignee for exploitation.
Revenue from sale of VCDs / DVDs, etc is recognised when the risks and rewards of ownership are passed on to the customer, which generally coincides with the dispatch of the products.
Film production services
Revenue from processing / printing of cinematographic films is recognised upon completion of the related processing / printing.
Revenue from processing of digital content is recognised using the proportionate completion method. Use of the proportionate completion method requires the Company to estimate the efforts expended to date as a proportion of the total efforts to be expended. Efforts expended have been used to measure progress towards completion, as there is a direct relationship between efforts expended and contracted output.
Sale of traded goods is recognised when the risks and rewards of ownership are passed on to the customer, which generally coincides with the dispatch of goods.
Income from equipment / facility rental is recognised over the period of the relevant agreement / arrangement.
Theatrical exhibition and related income
Sale of tickets
Revenue from theatrical exhibition is recognised on the date of the exhibition of the films and comprises proceeds from sale of tickets, gross of entertainment tax. As the Company is the primary obligor with respect to exhibition activities, the share of distributors in these proceeds is separately disclosed as distributors' share.
Amount of entertainment tax is shown as a reduction from revenue
Sale of food and beverages
Revenue from sale of food and beverages is recognised upon sale and delivery at the counter.
Interest income / income from film financing
Interest income, including from film / content related production financing, is recognised on a time proportion basis at the rate implicit in the transaction.
Dividend income is recognised when the right to receive dividend is unconditional at the balance sheet date.
Marketing rights / Rights to profit
Amounts received in lieu of future marketing rights sale, right to future profit from business of the Company and other rights are recognised as income in the year of entering into the contract.
Foreign currency transactions
Reliance has operations all over the world. This income is in terms of foreign currency. Transactions denominated in foreign currency are recorded at the exchange rate prevailing on the date of the transactions. Exchange differences arising on foreign exchange transactions settled during the year are recognised in the profit and loss account of the year.
Reliance has a separate module for the purpose of treasury management.
This module constantly manages the assets and the investments that have been made by the company.
Reliance Mediaworks is invested in many bonds and mutual funds. The list of these investments as well as such other investments is maintained by SAP. New investments to be made are also analysed by the MIS. A provision for diminution is made to recognise a decline, other than temporary, in the value of long-term investments and is determined separately for each individual investment.
Current investments are carried at lower of cost and fair value.
Fixed assets and depreciation / amortisation
a. Tangible assets
Tangible fixed assets are stated at cost and / or revalued amount in accordance with scheme of amalgamation less accumulated depreciation and any provision for impairment. Cost includes freight, duties, taxes (other than those recoverable from tax authorities) and other expenses related directly / indirectly to the acquisition / construction and installation of the fixed assets for bringing the asset to its working condition for its intended use.
Depreciation on fixed assets is provided on the straight line method, at the rates prescribed in Schedule XIV to the Act, which, in management's opinion, reflects the estimated useful lives of those fixed assets, except in case of following assets of theatrical exhibition segment wherein depreciation is provided at following rates:
Particulars of fixed assets
Rate of depreciation
Plant and machinery
Furniture and fixture
Application software purchased, which is not an integral part of the related hardware, is shown as intangible assets and amortised on a straight line basis over its useful life, not exceeding five / ten years, as determined by management.
Film rights comprise negative rights and distribution rights in films and are for a contractually specified mode of exploitation, period and territory and are stated at cost less accumulated amortisation. Cost of film rights comprises original purchase price / minimum guarantee. Cost is ascertained on specific identification basis where possible. In case multiple films / rights are acquired for a consolidated amount, cost is allocated to each film / right based on management's best estimates.
The individual film forecast method is used to amortise the cost of film rights acquired. Under this method, costs are amortised in the proportion that gross revenues realised bear to management's estimate of the total gross revenues expected to be received. If estimates of the total revenues and other events or changes in circumstances indicate that the realisable value of a right is less than its unamortised cost, a loss is recognised for the excess of unamortised cost over the film right's realisable value.
In respect of unreleased films, payments towards film rights are classified under capital advances as the amounts are refundable in the event of nonrelease of the film.
Purchased goodwill is recognised by the Company on the basis of excess of purchase consideration paid over the value of the assets acquired at the time of acquisition and is amortised over its estimated useful life not exceeding ten years.
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