Apple 2005 Annual Report Download - page 69

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1—Summary of Significant Accounting Policies (Continued)
impairment, goodwill has been allocated to these reporting units to the extent it relates to each reporting unit.SFAS No. 142 also requires that
intangible assets with definite lives be amortized over their estimated useful lives and reviewed for impairment in accordance with SFAS
No. 144,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of . The Company is currently
amortizing its acquired intangible assets with definite lives over periods ranging from 3 to 10 years.
Foreign Currency Translation
The Company translates the assets and liabilities of its international non-U.S. functional currency subsidiaries into U.S. dollars using exchange
rates in effect at the end of each period. Revenue and expenses for these subsidiaries are translated using rates that approximate those in effect
during the period. Gains and losses from these translations are credited or charged to foreign currency translation included in “accumulated
other comprehensive income (loss)” in shareholders’ equity. The Company’s foreign manufacturing subsidiaries and certain other international
subsidiaries that use the U.S. dollar as their functional currency remeasure monetary assets and liabilities at exchange rates in effect at the end
of each period, and inventories, property, and nonmonetary assets and liabilities at historical rates. Gains and losses from these translations
were insignificant and have been included in the Company’s results of operations.
Revenue Recognition
Net sales consist primarily of revenue from the sale of hardware, software, peripherals, digital content, and service and support contracts. The
Company recognizes revenue pursuant to applicable accounting standards, including Statement of Position (SOP) No. 97-2, Software Revenue
Recognition
, as amended, and Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition .
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or
determinable, and collection is probable. Product is considered delivered to the customer once it has been shipped and title and risk of loss have
been transferred. For most of the Company’s product sales, these criteria are met at the time the product is shipped. For online sales to
individuals, for some sales to education customers in the U.S., and for certain other sales, the Company defers revenue until the customer
receives the product because the Company legally retains a portion of the risk of loss on these sales during transit. If at the outset of an
arrangement the Company determines the arrangement fee is not, or is presumed to not be, fixed or determinable, revenue is deferred and
subsequently recognized as amounts become due and payable.
Revenue from service and support contracts is deferred and recognized ratably over the service coverage periods. These contracts typically
include extended phone support, repair services, web-based support resources, diagnostic tools, and extend the service coverage offered under
the Company’s one-year limited warranty.
The Company sells software and peripheral products obtained from other companies. The Company establishes its own pricing and retains
related inventory risk, is the primary obligor in sales transactions with its customers, and assumes the credit risk for amounts billed to its
customers. Accordingly, the Company recognizes revenue for the sale of products obtained from other companies at the gross amount billed.
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