During the year, the director identified that advances received from Believe Music in prior accounting periods had been incorrectly recognised as turnover upon receipt. Under the terms of the agreement, these advances are recoupable against future royalties generated from music distributed by Believe Music and are not otherwise repayable. Accordingly, they should have been recognised as a liability until recouped.
Accordingly, the opening balances have been adjusted to recognise the outstanding recoupable advance liability. This correction has reduced opening retained earnings by £200,000 and increased creditors by £200,000.
This has been treated as a prior period adjustment. The adjustment relates to prior accounting periods and has no impact on the current year’s results.