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Principles of Finance: Unit 9, Why GAAP Accounting Exists 27 Views
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Description:
Why GAAP Accounting exists.
Transcript
- 00:00
Principles of finance ah la shmoop why gap accounting exists
- 00:07
think hollywood profits is an oxymoron Well for low level
- 00:12
profit participants it usually is like there ain't no profits
- 00:16
for low level players in hollywood That is if you're
- 00:19
not a headliner like brad pitt or steven spielberg the
Full Transcript
- 00:23
way your profits get defined is likely very different from
- 00:26
the definitions for brad or stephen Yeah we're on a
- 00:29
first name basis here you know he directs a bunch
- 00:31
of our videos kinch tell all right Well the stars
- 00:33
attributed cost of renting capital might be a five percent
- 00:37
movies cost upwards of one hundred million dollars to make
- 00:40
for the big ones S o five percent on one
- 00:42
hundred billion dollars for steven and brad Yeah five million
- 00:45
bucks a year Okay they can stomach that Whereas a
- 00:48
lower level profit participant might get assigned a capital cost
- 00:52
of eighteen percent a year on that hundred million bucks
- 00:55
Yeah eighteen million a year in interest cost to rent
- 00:57
that money and it takes a whole lot longer for
- 00:59
the lower level Guys get profitable and participate in profits
- 01:03
Take eight years to pay back that hundred million Well
- 01:06
that's a lot of cash spent just to pay back
- 01:08
the rent on the capital to make the movie in
- 01:11
the first place or paid the studio a the bank
- 01:14
So yes the terms are different but they're at least
- 01:17
accurate stated and track ahh lower level profit participant knows
- 01:21
exactly when they become profitable It's not chicken ary lives
- 01:24
and seat it's Just negotiating leverage because i don't really
- 01:28
need john travolta in the movie Well there's an actual
- 01:30
process to the way in which the numbers get presented
- 01:33
to hollywood agents and managers and well also to the
- 01:36
irs But read a number quote from a financial site
- 01:39
a business marketing it's wears or anyone who has an
- 01:42
axe to grind in expressing data and that little skin
- 01:46
fold between your eyebrows will likely get active So let's
- 01:49
walk through an example of a profit participant and note
- 01:52
why gap accounting also known as what's it called oh
- 01:55
yeah rules are so important in counting beans Exhibitor narcissus
- 02:03
makes a movie called egg xavier He leaves his salary
- 02:07
as quote undetermined unquote He gets a star to take
- 02:10
half the profits while the movie cost fifty million box
- 02:13
to make twenty five million to market with everything paid
- 02:16
accepting xavier's salary well the film reaps one hundred eighty
- 02:19
million dollars at the box office and sales of which
- 02:22
the producer distributor egg xavier keeps yeah for about ninety
- 02:25
million bucks As the dough wires in from theaters around
- 02:28
the world xavier decides to fill in the blank on
- 02:31
his salary where he then writes fifteen million Yeah the
- 02:35
ninety million dollars would have made fifteen million after production
- 02:39
marketing costs but eggs aviators hefty salary just blew out
- 02:43
any notion of profits to the star or any other
- 02:46
profit participants They're not fare well What went wrong here
- 02:50
Well the star was certain that this film would be
- 02:52
a hit That's Why I signed up to be in
- 02:54
it in the first place But now the film makes
- 02:57
all this dough in the stargates Whole lot of nothing
- 03:00
What time is it Yeah Agent firing time Yeah The
- 03:03
agents falls the agent should have negotiated for A better
- 03:06
clearer definition of profit for his client was everything accounted
- 03:11
for in complaints of gap Yeah probably Maybe even absolutely
- 03:15
The salary just wasn't made clear until well it was
- 03:18
too late The best creative people aren't those who write
- 03:21
the scripts Just look at the accountants who defined notions 00:03:25.177 --> [endTime] of what profit really is
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