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The cost recovery method allows a deduction in a relevant period up to the amount of income received from the exploitation of the master version of the sound recording in that relevant period. It only applies where that income exceeds the amount deductible under the income matching method and there is unrelieved expenditure.

Example

A sound recording is in the course of production in year 1 where 拢2.5 million of expenditure is incurred.

In year 2 the recording is completed and further expenditure of 拢1.5 million is incurred, thus total expenditure on production of the master version of the recording is 拢4 million.

In year 2 the recording is released and generates income of 拢3million out of a total estimated income of 拢8 million.

In year 3 the recording generates a further 拢2 million of income but the total estimated income for the recording is revised down to 拢6 million.

In year 4 the recording generates income of 拢1 million. It is unlikely to generate more than a negligible amount of income in future and it is accepted that for the purposes of writing-off the expenditure the expected future income is nil.

Relief under the cost recovery method is as follows:

Year	Unrelieved cost	Income	Cost recovery method
1	拢2.5 million	nil	nil
2	拢4.0 million	拢3.0 million	拢3.0 million
3	拢1.0 million	拢2.0 million	拢1.0 million
4	nil	拢1.0 million	nil

As the cost recovery method provides an additional deduction over and above the amount that is due under the income matching method it is only applicable where the income matching method gives a figure lower than the income received in the relevant period.

In the example above, if the estimated future income at the end of year 2 is 拢0.5 million the income matching method provides a deduction of 拢3.5 million for that year (see BIM56220 example 2). As the 鈥榠ncome matching鈥� deduction exceeds the income for the period there is no additional amount to claim under the cost recovery method.