Student Coaching Slides VIP Motion Student Coaching Slides

Did VIP Motion 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? PlexMedia’s argument: They were granted the right to exclusively show the films without any geographical limitation. VIP Motion’s argument: A geographical limitation is implied; presumably PlexMedia’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 Super Fighters and the minimum for SF II-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 PlexMedia’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 $5,000,000 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 PlexMedia 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.