Dell 2008 Annual Report Download - page 60

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
financial assumptions, including pool credit losses, payment rates, and discount rates. These assumptions are supported by both Dell's historical
experience and anticipated trends relative to the particular receivable pool. See Note 6 of Notes to Consolidated Financial Statements for additional
information.
Allowance for Doubtful Accounts — Dell recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable
future losses. The allowance is based on an analysis of historical bad debt experience, current receivables aging, expected future write-offs, as well
as an assessment of specific identifiable customer accounts considered at risk or uncollectible. The expense associated with the allowance for
doubtful accounts is recognized as selling, general, and administrative expense.
Allowance for Financing Receivables Losses — Dell recognizes an allowance for losses on financing receivables in an amount equal to the probable
future losses net of recoveries. The allowance for losses is determined based on a variety of factors, including historical experience, past due
receivables, receivable type, and risk composition. Financing receivables are charged to the allowance at the earlier of when an account is deemed to
be uncollectible or when the account is 180 days delinquent. Recoveries on receivables previously charged off as uncollectible are recorded to the
allowance for losses on financing receivables. The expense associated with the allowance for financing receivables losses is recognized as cost of net
revenue. See Note 6 of Notes to Consolidated Financial Statements for additional information.
Inventories — Inventories are stated at the lower of cost or market with cost being determined on a first-in, first-out basis.
Property, Plant, and Equipment — Property, plant, and equipment are carried at depreciated cost. Depreciation is provided using the straight-line
method over the estimated economic lives of the assets, which range from ten to thirty years for buildings and two to five years for all other assets.
Leasehold improvements are amortized over the shorter of five years or the lease term. Gains or losses related to retirements or disposition of fixed
assets are recognized in the period incurred. 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.
Impairment of Long-Lived Assets — In accordance with the provisions SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," Dell reviews long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be recoverable based on
the undiscounted future cash flows of the asset. If the carrying amount of the asset is determined not to be recoverable, a write-down to fair value is
recorded. Fair values are determined based on quoted market values, discounted cash flows, or external appraisals, as applicable. Dell reviews long-
lived assets for impairment at the individual asset or the asset group level for which the lowest level of independent cash flows can be identified.
Business Combinations and Intangible Assets Including Goodwill — Dell accounts for business combinations using the purchase method of
accounting and accordingly, the assets and liabilities of the acquired entities are recorded at their estimated fair values at the acquisition date.
Goodwill represents the excess of the purchase price over the fair value of net assets, including the amount assigned to identifiable intangible assets.
Given the time it takes to obtain pertinent information to finalize the fair value of the acquired assets and liabilities, it may be several quarters before
Dell is able to finalize those initial fair value estimates. Accordingly, it is common for the initial estimates to be subsequently revised. The results of
operations of acquired businesses are included in the Consolidated Financial Statements from the acquisition date.
Identifiable intangible assets with finite lives are amortized over their estimated useful lives. They are generally amortized on a non-straight line
approach based on the associated projected cash flows in order to match the amortization pattern to the pattern in which the economic benefits of the
assets are expected to be consumed. They are reviewed for impairment if indicators of potential impairment exist. Goodwill and indefinite lived
intangible assets are tested for impairment on an annual basis in the second fiscal quarter, or sooner if an indicator of impairment occurs.
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. 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. Cumulative foreign currency translation adjustments totaled an
$11 million loss, $16 million loss, and $33 million loss at January 30, 2009, February 1, 2008, and
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