Boeing 2009 Annual Report Download - page 73

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The determination of net realizable value of long-term contract costs is based upon quarterly reviews
that determine an estimate of costs to be incurred to complete all contract requirements. When actual
contract costs and the estimate to complete exceed total estimated contract revenues, a loss provision
is recorded. The determination of net realizable value of commercial aircraft program costs is based
upon quarterly program reviews that determine an estimate of revenue and cost to be incurred to
complete the program accounting quantity. When estimated costs to complete exceed estimated
program revenues to go, a program loss provision is recorded in the current period for the estimated
loss on all undelivered units in the accounting quantity.
Used aircraft purchased by the Commercial Airplanes segment and general stock materials are stated
at cost not in excess of net realizable value. See ‘Aircraft valuation’ within this Note for our valuation of
used aircraft. Spare parts inventory is stated at lower of average unit cost or market. We review our
commercial spare parts and general stock materials quarterly to identify impaired inventory, including
excess or obsolete inventory, based on historical sales trends, expected production usage, and the
size and age of the aircraft fleet using the part. Impaired inventories are charged to Cost of products in
the period the impairment occurs.
Included in inventory for commercial aircraft programs are amounts paid or credited in cash, or other
consideration to certain airline customers, that are referred to as early issue sales consideration. Early
issue sales consideration is recognized as a reduction to revenue when the delivery of the aircraft
under contract occurs. In the unlikely situation that an airline customer was not able to perform and
take delivery of the contracted aircraft, we believe that we would have the ability to recover amounts
paid through retaining amounts secured by advances received on aircraft to be delivered. However, to
the extent early issue sales consideration exceeds advances and is not considered to be recoverable,
it would be recognized as a current period expense.
We net advances and progress billings on long-term contracts against inventory in the Consolidated
Statements of Financial Position. Advances and progress billings in excess of related inventory are
reported in Advances and billings in excess of related costs.
Precontract Costs
We may, from time to time, incur costs to begin fulfilling the statement of work under a specific
anticipated contract that we are still negotiating with a customer. If we determine it is probable that we
will be awarded the specific anticipated contract, then we capitalize the precontract costs we incur,
excluding any start-up costs which are expensed as incurred. Capitalized precontract costs of $183
and $350 at December 31, 2009 and 2008, are included in Inventories, net of advances and progress
billings, in the accompanying Consolidated Statements of Financial Position.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, including applicable construction-period interest,
less accumulated depreciation and are depreciated principally over the following estimated useful lives:
new buildings and land improvements, from 10 to 40 years; and new machinery and equipment, from
3 to 20 years. The principal methods of depreciation are as follows: buildings and land improvements,
150% declining balance; and machinery and equipment, sum-of-the-years’ digits. Capitalized internal
use software is included in Other assets and amortized using the straight line method over five years.
We periodically evaluate the appropriateness of remaining depreciable lives assigned to long-lived
assets, including assets that may be subject to a management plan for disposition.
Long-lived assets held for sale are stated at the lower of cost or fair value less cost to sell. Long-lived
assets held for use are subject to an impairment assessment whenever events or changes in
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