Apple 2010 Annual Report Download - page 59

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Table of Contents
the hedged risk are recognized in earnings in the current period. The Company did not have a net gain or loss on these derivative instruments
during 2010, 2009 and 2008. The net gain or loss on the effective portion of a derivative instrument that is designated as an economic hedge of
the foreign currency translation exposure of the net investment in a foreign operation is reported in the same manner as a foreign currency
translation adjustment. For forward exchange contracts designated as net investment hedges, the Company excludes changes in fair value
relating to changes in the forward carry component from its definition of effectiveness. Accordingly, any gains or losses related to this
component are recognized in current earnings.
Allowance for Doubtful Accounts
The Company records its allowance for doubtful accounts based upon its assessment of various factors. The Company considers historical
experience, the age of the accounts receivable balances, credit quality of the Company’
s customers, current economic conditions, and other
factors that may affect customers’ ability to pay.
Inventories
Inventories are stated at the lower of cost, computed using the first-in, first-
out method, or market. If the cost of the inventories exceeds their
market value, provisions are made currently for the difference between the cost and the market value. The Company’
s inventories consist
primarily of components and finished goods for all periods presented.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed by use of the straight-
line method over the estimated useful lives of
the assets, which for buildings is the lesser of 30 years or the remaining life of the underlying building, up to five years for equipment, and the
shorter of lease terms or ten years for leasehold improvements. The Company capitalizes eligible costs to acquire or develop internal-
use
software that are incurred subsequent to the preliminary project stage. Capitalized costs related to internal-
use software are amortized using the
straight-
line method over the estimated useful lives of the assets, which range from three to five years. Depreciation and amortization expense on
property and equipment was $815 million, $606 million and $387 million during 2010, 2009 and 2008, respectively.
Long-Lived Assets Including Goodwill and Other Acquired Intangible Assets
The Company reviews property, plant and equipment and certain identifiable intangibles, excluding goodwill, for impairment. Long-
lived assets
are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to
generate. If property, plant and equipment and certain identifiable intangibles are considered to be impaired, the impairment to be recognized
equals the amount by which the carrying value of the assets exceeds its fair market value. The Company did not record any significant
impairments during 2010, 2009 and 2008.
The Company does not amortize goodwill and intangible assets with indefinite useful lives, rather such assets are required to be tested for
impairment at least annually or sooner whenever events or changes in circumstances indicate that the assets may be impaired. The Company
performs its goodwill and intangible asset impairment tests on or about August 31 of each year. The Company did not recognize any goodwill or
intangible asset impairment charges in 2010, 2009 and 2008. The Company established reporting units based on its current reporting structure.
For purposes of testing goodwill for impairment, goodwill has been allocated to these reporting units to the extent it relates to each reporting
unit.
The Company amortizes its intangible assets with definite lives over their estimated useful lives and reviews these assets for impairment. The
Company is currently amortizing its acquired intangible assets with definite lives over periods ranging from three to ten years.
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