Goliath Productions Student Coaching Slides Did Goliath breach

Goliath Productions Student Coaching Slides

Did Goliath breach the contract? • Argue both sides • Cite supporting authority • Standard: What were the parties’ reasonable expectations?

Courts seek to preserve, not invalidate agreements • Don’t sidestep the issues by saying there’s no agreement • Promote fairness where it appears there was agreement • Discuss policy that agreements generally must be enforceable in order to promote commerce

What did the parties intend at the time they entered the contract? Giant’s argument: They were granted the right to exclusively show the films without any geographical limitation. Goliath’s argument: A geographical limitation is implied; presumably Giant’s exclusivity is extended only to their market, i. e. the U. S.

Budgeted Revenues • Sources of revenue in case – Contract fees – Exhibition fees • Exhibition fees = Revenue per showing × number of showings – Budgeted showings should include the expected maximum of Kombat Rex and the minimum for KR 11 -V

Revenue Recognition Criteria • Per GAAP, revenue is recognized when it is: – Realized or realizable – Earned

Realized & Realizable • Realized—cash has been received. • Realizable—a claim to cash or a near cash item has been received, e. g. , accounts or note receivables. The company giving the claim to cash must have the ability to pay. • Question—Is there any doubt about Giant’s ability to pay their contracted amounts?

Earned • Earned means that your company has performed the most important tasks in the earnings process. – This usually means that you’ve delivered the merchandise or rendered the service to the customer. – In this case it means that your team must evaluate what tasks must be performed to recognize each source of revenue (contract and exhibition fees. )

Contract Fees • What was the contract fee of $5, 000 for? – The exclusive right to the films? – The signing of the contract? – Additional amounts for showing films? • Your answer impacts when revenue will be recognized for contract fees.

Exhibition Fees • Exhibition fees are earned ($500) each time a movie is shown according to contract terms. • Question—Is Giant showing the movies according to contract terms? Study their audited statement of showings dated December 31, 2006.

Revenue vs. Cash Flow • Revenue measures the amount that you have earned through providing goods and services to customers, regardless of whether you have received payment in cash. • Cash flow measures the amount of cash received. They represent real increases in your bank balance that you can spend.