Minimum guarantee definition
/What is a Minimum Guarantee?
A minimum guarantee is an advance payment made by a licensee to a licensor for the right to sell or distribute music or films. If the product linked to a guarantee sells better than expected, the licensee will be obligated to make additional royalty payments to the licensor. If the product sells worse than expected, the licensee is still obligated to pay the full amount of the minimum guarantee.
Accounting for a Minimum Guarantee
The licensee should record a minimum guarantee payment as an asset. This amount is subsequently charged to expense in accordance with the terms of the related license agreement. If a portion of the payment does not appear to be recoverable from the future use of the rights obtained by the licensee, the non-recoverable portion of the payment should be charged to expense in the current period. This current period charge is, in effect, a write-down in the value of the minimum guarantee asset by the licensee.