Facebook 2012 Annual Report Download - page 85

Our valuation techniques used to measure the fair value of money market funds and marketable debt
securities were derived from quoted prices in active markets for identical assets or liabilities and our valuation
technique used to measure the fair value of our derivative instrument was based on a model-driven valuation
using significant inputs derived from or corroborated by observable market data.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded and carried at the original invoiced amount less an allowance for any
potential uncollectible amounts. We make estimates for the allowance for doubtful accounts based upon our
assessment of various factors, including historical experience, the age of the accounts receivable balances, credit
quality of our customers, current economic conditions, and other factors that may affect customers’ ability to
pay.
Property and Equipment
Property and equipment, which includes amounts recorded under capital leases, are stated at cost.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets or the
remaining lease term, in the case of a capital lease, whichever is shorter.
The estimated useful lives of property and equipment are described below:
Property and Equipment Useful Life
Network equipment ............................ Three to four years
Buildings .................................... 15to20years
Computer software, office equipment and other ...... Twotofive years
Leased equipment and leasehold improvements ...... Lesser of estimated useful life or remaining lease term
Land and assets held within construction in progress are not depreciated. Construction in progress is related
to the construction or development of property and equipment that have not yet been placed in service for their
intended use.
The cost of maintenance and repairs is expensed as incurred. When assets are retired or otherwise disposed
of, the cost and related accumulated depreciation are removed from their respective accounts, and any gain or
loss on such sale or disposal is reflected in income from operations.
Lease Obligations
We lease office space, data centers, and equipment under non-cancelable capital and operating leases with
various expiration dates through 2027. Certain of the operating lease agreements contain rent holidays, rent
escalation provisions, and purchase options. Rent holidays and rent escalation provisions are considered in
determining the straight-line rent expense to be recorded over the lease term. The lease term begins on the date of
initial possession of the leased property for purposes of recognizing lease expense on a straight-line basis over
the term of the lease. We do not assume renewals in our determination of the lease term unless the renewals are
deemed to be reasonably assured at lease inception.
Loss Contingencies
We are involved in various lawsuits, claims, investigations and proceedings that arise in the ordinary course
of business. We record a liability when we believe that it is both probable that a loss has been incurred and the
amount can be reasonably estimated. Significant judgment is required to determine both probability and the
estimated amount. We review these provisions at least quarterly and adjust these provisions accordingly to reflect
the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information.
81