HP 2009 Annual Report Download - page 96

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
held in major banks and commercial paper. As of October 31, 2009 and 2008, the carrying value of
cash and cash equivalents approximates fair value due to the short period of time to maturity. Interest
income was approximately $119 million in fiscal 2009, $401 million in fiscal 2008 and $598 million in
fiscal 2007.
Allowance for Doubtful Accounts
HP establishes an allowance for doubtful accounts to ensure trade and financing receivables are
not overstated due to uncollectability. HP maintains bad debt reserves based on a variety of factors,
including the length of time receivables are past due, trends in overall weighted-average risk rating of
the total portfolio, macroeconomic conditions, significant one-time events, historical experience and the
use of third-party credit risk models that generate quantitative measures of default probabilities based
on market factors and the financial condition of customers. HP records a specific reserve for individual
accounts when HP becomes aware of specific customer circumstances such as in the case of bankruptcy
filings or deterioration in the customer’s operating results or financial position. If circumstances related
to customers change, HP would further adjust estimates of the recoverability of receivables.
Inventory
HP values inventory at the lower of cost or market, with cost computed on a first-in, first-out basis.
Adjustments to reduce the cost of inventory to its net realizable value are made, if required, for
estimated excess, obsolescence or impaired balances.
Property, Plant and Equipment
HP states property, plant and equipment at cost less accumulated depreciation. HP capitalizes
additions and improvements and expenses maintenance and repairs as incurred. Depreciation is
computed using straight-line or accelerated methods over the estimated useful lives of the assets.
Estimated useful lives are 5 to 40 years for buildings and improvements and 3 to 15 years for
machinery and equipment. HP depreciates leasehold improvements over the life of the lease or the
asset, whichever is shorter. HP depreciates equipment held for lease over the initial term of the lease
to the equipment’s estimated residual value. The estimated useful lives of assets used solely to support
a customer services contract generally do not exceed the term of the customer contract.
HP capitalizes certain internal and external costs incurred to acquire or create internal use
software, principally related to software coding, designing system interfaces and installation and testing
of the software. HP amortizes capitalized internal use software costs using the straight-line method over
the estimated useful lives of the software, generally from three to five years.
Goodwill and Purchased Intangible Assets
Goodwill and purchased intangible assets with indefinite useful lives are not amortized but are
tested for impairment at least annually. HP reviews goodwill and purchased intangible assets with
indefinite lives for impairment annually at the beginning of its fourth fiscal quarter and whenever
events or changes in circumstances indicate the carrying value of an asset may not be recoverable. For
goodwill, HP performs a two-step impairment test. In the first step, HP compares the fair value of each
reporting unit to its carrying value. Our reporting units are consistent with the reportable segments
identified in Note 19. HP determines the fair value of its reporting units based on a weighting of
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