CVS 2010 Annual Report Download - page 56

Notes to Consolidated Financial Statements
The activity in the allowance for doubtful trade accounts receivable is as follows:
Fiscal Year Ended December 31,
in millions 2010 2009 2008
Opening balance $ 224 $ 189 $ 108
Additions charged to bad debt expense 73 135 121
Write-offs charged to allowance (115) (100) (40)
Ending balance $ 182 $ 224 $ 189
Inventories – Inventories are stated at the lower of cost or market on a first-in, first-out basis using the retail method of accounting
to determine cost of sales and inventory in the Company’s CVS/pharmacy stores, weighted average cost to determine cost of
sales and inventory in the Company’s mail service and specialty pharmacies and the cost method of accounting on a first-in,
first-out basis to determine inventory in the Company’s distribution centers. Physical inventory counts are taken on a regular
basis in each store and a continuous cycle count process is the primary procedure used to validate the inventory balances on
hand in each distribution center and mail facility to ensure that the amounts reflected in the accompanying consolidated financial
statements are properly stated. During the interim period between physical inventory counts, the Company accrues for antici-
pated physical inventory losses on a location-by-location basis based on historical results and current trends.
Property and equipment – Property, equipment and improvements to leased premises are depreciated using the straight-line
method over the estimated useful lives of the assets, or when applicable, the term of the lease, whichever is shorter. Estimated
useful lives generally range from 10 to 40 years for buildings, building improvements and leasehold improvements and 3 to 10
years for fixtures, equipment and internally developed software. Repair and maintenance costs are charged directly to expense
as incurred. Major renewals or replacements that substantially extend the useful life of an asset are capitalized and depreciated.
Application development stage costs for significant internally developed software projects are capitalized and depreciated.
The following are the components of property and equipment at December 31:
in millions 2010 2009
Land $ 1,247 $ 1,076
Building and improvements 2,265 2,020
Fixtures and equipment 7,148 6,322
Leasehold improvements 2,866 2,673
Software 757 853
14,283 12,944
Accumulated depreciation and amortization (5,961) (5,021)
$ 8,322 $ 7,923
The gross amount of property and equipment under capital leases was $191 million as of December 31, 2010 and 2009, respectively.
Goodwill – Goodwill and other indefinite-lived assets are not amortized, but are subject to impairment reviews annually, or more
frequently if necessary. See Note 3 for additional information on goodwill.
Intangible assets – Purchased customer contracts and relationships are amortized on a straight-line basis over their estimated
useful lives between 10 and 20 years. Purchased customer lists are amortized on a straight-line basis over their estimated useful
lives of up to 10 years. Purchased leases are amortized on a straight-line basis over the remaining life of the lease. See Note 3 for
additional information about intangible assets.
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CVS Caremark 2010 Annual Report