Question: rovio entertainment is a finnish developer publisher and distributor of...
Rovio Entertainment is a Finnish developer, publisher and
distributor of video games
headquartered in Espoo, Finland. Rovio was founded in 2003 by three students from Helsinki
University of Technology following a victory in a developers’ competition with a multiplayer game
called King of the Cabbage World, later renamed Mole War. Rovio’s games include Angry Birds,
Bad Piggies, Shakira and Fruit Nibblers. Rovio produced The Angry Birds Movie and launched an
entertainment channel, Toons.TV (discontinued in 2017). Rovio licenses its Angry Birds content to
other distributors such as Activision and obtains licenses to produce games such as Angry Birds
Star Wars. Rovio trades on the NASDAQ Helsinki stock exchange and reports in Euro. All
amounts are in millions of Euro, rounded to hundreds of thousands. Please round to hundreds of
thousands of euro (€XX.X million). Assume a 25% tax rate throughout. Rovio’s fiscal yearend
is December 31.
The following italicized text explains the basics of Rovio’s
expense and revenue recognition
based on their accounting policies footnote. Please read carefully!
Games: Rovio’s games are free to play, but Rovio makes money from in-application
purchases. There are two different kinds of in-application purchases in Rovio games:
consumables and durables. Consumables benefit the user immediately, while benefits from
durables last across the user lifetime. Consumables satisfy revenue recognition “at a point
in time”, i.e., when purchased by the player. Durables are recognized as revenue “over
time”, i.e., over the estimated player lifetime. Durables always have a two-year life with
half of the revenue recognized in the year of purchase and the other half in the following
Broadcasting: Broadcasting royalties are from The Angry Birds
Movie and TV shows
such as Piggy Tales and Angry Birds Blues. Columbia Pictures acts as a paymaster and
manages all money flows in the broadcasting value chain. Rovio recognises its revenue
earned from end-users when it is reported to Rovio by Columbia. Since Rovio is the
residual receiver in the value chain, there is a significant delay between Columbia
reporting the end-user purchase and Rovio receiving the cash, during which time the
amounts are included in Broadcasting Receivables.
Movie: Rovio’s only movie to date is The Angry Birds Movie, released in 2016. The
amortisation schedule of capitalised development costs (Development Costs, Movies, on
the balance sheet) related to the Angry Birds Movie is based on the ratio of the revenue
from the movie in a given period relative to the total expected revenue throughout the
movie’s entire lifecycle. The total development costs of The Angry Birds Movie was €100.
Games: Early stage “research” costs associated with games are expensed as incurred.
“Development” costs are recognised as an intangible asset when Rovio can demonstrate
the technical feasibility and intent to complete and market the project, as well as the
probability of the asset generating future economic benefits. Game Development Costs
are amortized straight-line over a two-year estimated useful life.
1. During 2018, Rovio receives game payments (in cash) of €193.2
of which €158.2 is for
“consumables” and €35.0 is for “durables.” Durables always have a two-year estimated
life, with half recognized in the year the payment is received and the remainder in the
2. During 2018, Columbia reports to Rovio that Rovio has earned
€125.0 from broadcasting
royalties for 2018. The ending balance in Broadcasting Receivables at year-end 2018
Please help with Journal entry for Q1 &2