HP 2015 Annual Report Download - page 55

Table of Contents
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taken on our tax returns are fully supported, but tax authorities may challenge these positions, which may not be fully sustained on examination by the
relevant tax authorities. Accordingly, our income tax provision includes amounts intended to satisfy assessments that may result from these challenges.
Determining the income tax provision for these potential assessments and recording the related effects requires management judgments and estimates. The
amounts ultimately paid on resolution of an audit could be materially different from the amounts previously included in our income tax provision and,
therefore, could have a material impact on our income tax provision, net income and cash flows. Our accrual for uncertain tax positions is attributable
primarily to uncertainties concerning the tax treatment of our international operations, including the allocation of income among different jurisdictions,
intercompany transactions and related interest. For a further discussion on taxes on earnings, refer to Note 6 to the Consolidated Financial Statements in
Item 8, which is incorporated herein by reference.
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We state our inventory at the lower of cost or market on a first-in, first-out basis. We make adjustments to reduce the cost of inventory to its net realizable
value at the product group level for estimated excess or obsolescence. Factors influencing these adjustments include changes in demand, technological
changes, product life cycle and development plans, component cost trends, product pricing, physical deterioration and quality issues.

We allocate the fair value of purchase consideration to the assets acquired, including in-process research and development ("IPR&D"), liabilities
assumed, and non-controlling interests in the acquiree generally based on their fair values at the acquisition date. IPR&D is initially capitalized at fair value
as an intangible asset with an indefinite life and assessed for impairment thereafter. When the IPR&D project is complete, it is reclassified as an amortizable
purchased intangible asset and is amortized over its estimated useful life. If an IPR&D project is abandoned, we will record a charge for the value of the
related intangible asset to the Consolidated Statement of Earnings in the period it is abandoned. The excess of the fair value of purchase consideration over
the fair value of these assets acquired, liabilities assumed and non-controlling interests in the acquiree is recorded as goodwill.
When determining the fair values of assets acquired, liabilities assumed, and non-controlling interests in the acquiree, management makes significant
estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to, expected
future cash flows, which includes consideration of future growth rates and margins, attrition rates, future changes in technology and brand awareness, loyalty
and position, and discount rates. Fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset
or liability. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date
of acquisition, as additional information about conditions existing at the acquisition date becomes available.

We review goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be
recoverable. While we are permitted to conduct a qualitative assessment to determine whether it is necessary to perform a two-step quantitative goodwill
impairment test, for our annual goodwill impairment test in the fourth quarter of fiscal 2015, we performed a quantitative test for all of our reporting units.
Goodwill is tested for impairment at the
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Source: HP INC, 10-K, December 16, 2015 Powered by Morningstar® Document Research℠
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