Dell 2004 Annual Report Download - page 44

Table of Contents
losses related to retirements or disposition of fixed assets are recognized in the period incurred. Dell performs reviews for the impairment of
fixed assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Dell
capitalizes eligible internal-use software development costs incurred subsequent to the completion of the preliminary project stage.
Development costs are amortized over the shorter of the expected useful life of the software or five years.
Foreign Currency Translation — The majority of Dell's international sales are made by international subsidiaries, most of which have the
U.S. dollar as their functional currency. Local currency transactions of international subsidiaries, which have the U.S. dollar as the functional
currency are remeasured into U.S. dollars using current rates of exchange for monetary assets and liabilities and historical rates of exchange
for nonmonetary assets. Gains and losses from remeasurement of monetary assets and liabilities are included in investment and other income,
net. Dell's subsidiaries that do not have the U.S. dollar as their functional currency translate assets and liabilities at current rates of exchange in
effect at the balance sheet date. Revenue and expenses from these international subsidiaries are translated using the monthly average
exchange rates in effect for the period in which the items occur. The resulting gains and losses from translation are included as a component of
stockholders' equity.
Hedging Instruments — Dell applies Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended, which establishes accounting and reporting standards for derivative instruments and hedging activities.
SFAS No. 133 requires Dell to recognize all derivatives as either assets or liabilities in its consolidated statement of financial position and
measure those instruments at fair value.
Treasury Stock — Effective with the beginning of the second quarter of fiscal 2002, Dell began holding repurchased shares of its common stock
as treasury stock. Prior to that date, Dell retired all such repurchased shares which were recorded as a reduction to retained earnings. Dell
accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders' equity.
Revenue Recognition — Net revenue includes sales of hardware, software and peripherals, and services (including extended service contracts
and professional services). These products and services are sold either separately or as part of a multiple-element arrangement. Dell allocates
fees from multiple-element arrangements to the elements based on the relative fair value of each element, which is generally based on the
relative list price of each element. For sales of extended warranties with a separate contract price, Dell defers revenue equal to the separately
stated price. Revenue associated with undelivered elements is deferred and recorded when delivery occurs. Product revenue is recognized, net
of an allowance for estimated returns, when both title and risk of loss transfer to the customer, provided that no significant obligations remain.
Revenue from extended warranty and service contracts, for which Dell is obligated to perform, is recorded as deferred revenue and
subsequently recognized over the term of the contract or when the service is completed. Revenue from sales of third-party extended warranty
and service contracts, for which Dell is not obligated to perform, is recognized on a net basis at the time of sale.
Dell defers the cost of shipped products awaiting revenue recognition until the goods are delivered and revenue is recognized. In-transit product
shipments to customers totaled $430 million and $387 million as of January 28, 2005 and January 30, 2004, respectively, and are included in
other current assets on Dell's consolidated statement of financial position.
Sale of Finance Receivables — Dell sells certain loan and lease finance receivables to a special purpose entity in securitization transactions.
The receivables are removed from the statement of financial position at the time they are sold. Receivables are considered sold when the
receivables are transferred beyond the reach of Dell's creditors, the transferee has the right to pledge or exchange the assets, and Dell has
surrendered control over the rights and obligations of the receivables. Gains and losses from the sale of certain loan and lease finance
receivables are 41