Groupon 2011 Annual Report Download - page 78

GROUPON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accounts Receivable, net
Accounts receivable primarily represent the net cash due from the Company's credit card and other payment processors for cleared transactions. The
carrying amount of the Company's receivables is reduced by an allowance for doubtful accounts that reflects management's best estimate of amounts that will not
be collected. The allowance is based on historical loss experience and any specific risks identified in collection matters. Accounts receivable are charged off
against the allowance for doubtful accounts when it is determined that the receivable is uncollectible. The Company's allowance for doubtful accounts at
December 31, 2010 and 2011 was less than $0.1 million. Bad debt expense for the years ended December 31, 2010 and 2011 was less than $0.1 million and
$0.2
million, respectively. No bad debt expense was recorded in the year ended December 31, 2009.
Property and Equipment, net
Property and equipment includes assets such as furniture and fixtures, leasehold improvements, computer hardware, internally developed software, and
office and telephone equipment. The Company accounts for property and equipment at cost less accumulated depreciation and amortization. Depreciation
expense is recorded on a straight-
line basis over the estimated useful lives of the assets (generally three years for computer hardware and office and telephone
equipment, five years for furniture and fixtures, and the shorter of the life of the lease or five years for leasehold improvements) and is classified within selling,
general and administrative expenses in the consolidated statements of operations. See Note 5 “ Property and Equipment, net .”
Internal Use Software
The Company incurs costs in developing internal use software. Costs incurred in the planning and evaluation stage of internal use computer software are
expensed as incurred. Costs incurred and accumulated during the application development stage are capitalized and included in property and equipment.
Capitalized internal use software costs are amortized over the expected economic life of two years using the straight-
line method. The total amortization expense
for the year ended December 31, 2011 was $0.2 million. At December 31, 2011, the net book value of internal use software costs was $4.6 million. No amounts
were capitalized in 2010.
Lease Obligations
The Company categorizes leases at their inception as either operating or capital leases, and may receive renewal or expansion options, rent holidays, and
leasehold improvement and other incentives on certain lease agreements. The Company recognizes lease costs on a straight-
line basis taking into account
adjustments for market provisions, such as free or escalating base monthly rental payments, or deferred payment terms such as rent holidays that defer the
commencement date of required payments. Additionally, the Company treats any incentives received as a reduction of costs over the term of the agreement. The
Company records rent expense associated with lease obligations in selling, general and administrative expenses in the consolidated statements of operations. See
Note 8
“Commitments and Contingencies.”
Goodwill and Other Intangible Assets
The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicates the carrying
value may not be recoverable. The Company evaluates the recoverability of goodwill using a two-
step impairment test. In the first step, the fair value for the
reporting unit is compared to its book value including goodwill. In the case that the fair value is less than the book value, a second step is performed that
compares the implied fair value of goodwill to the book value of the goodwill. The fair value for the implied goodwill is determined based on the difference
between the fair value of the reporting unit, which is generally based on the discounted future cash flows, and the net fair values of the identifiable assets and
liabilities excluding goodwill. If the implied fair value of the goodwill is less than the book value, the difference is recognized as an impairment charge in the
consolidated statements of operations. Absent any special circumstances that could require an interim test, the Company has elected to test for goodwill
impairment during the fourth quarter of each year.
Accounting guidance for the impairment or disposal of long-
lived assets, other than goodwill, also requires that intangible assets with finite lives be
amortized over their respective estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market
value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the
carrying amount of an asset or group of assets may not be recoverable. Amortization is computed using the straight-
line method over the estimated useful lives of
the respective intangible assets, generally from one to five years. See Note 4 “ Goodwill and Other Intangible
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