Apple 2015 Annual Report Download - page 50

Allowance for Doubtful Accounts
The Company records its allowance for doubtful accounts based upon its assessment of various factors, including historical experience,
age of the accounts receivable balances, credit quality of the Company’s customers, current economic conditions and other factors that
may affect the customers’ ability to pay.
Inventories
Inventories are stated at the lower of cost, computed using the first-in, first-out method and net realizable value. Any adjustments to
reduce the cost of inventories to their net realizable value are recognized in earnings in the current period. As of September 26, 2015 and
September 27, 2014, the Company’s inventories consist primarily of finished goods.
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; between one to five years for
machinery and equipment, including product tooling and manufacturing process 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 $9.2 billion, $6.9 billion and $5.8 billion during 2015, 2014 and 2013, respectively.
Long-Lived Assets Including Goodwill and Other Acquired Intangible Assets
The Company reviews property, plant and equipment, inventory component prepayments 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, inventory component
prepayments 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 value.
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 in the fourth quarter of each year. The Company did not recognize
any impairment charges related to goodwill or indefinite lived intangible assets during 2015, 2014 and 2013. 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. In 2015 and 2014, the Company’s goodwill was primarily allocated to
the Americas and Europe reporting units.
The Company amortizes its intangible assets with definite useful lives over their estimated useful lives and reviews these assets for
impairment. The Company typically amortizes its acquired intangible assets with definite useful lives over periods from three to seven years.
Fair Value Measurements
The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized
or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be
received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company
considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or
assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer
restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair
value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the
fair value measurement:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or
similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants
would use in pricing the asset or liability.
Apple Inc. | 2015 Form 10-K | 48