MasterCard 2008 Annual Report Download - page 78

Financial Statement Caption/
Critical Accounting Estimate Assumptions/Approach Used
Effect if Actual Results Differ
from Assumptions
Goodwill and Intangible Assets
(excluding Capitalized Software)
We perform analyses of goodwill
and intangible assets on an annual
basis or sooner if indicators of
impairment exist. This evaluation
utilizes a two-step approach. The
first step is to identify a potential
impairment and the second step
measures the amount of the
impairment loss, if any. Impairment
is measured as the excess of the
carrying amount over fair value.
The test methods employed in
performing the analyses involve
assumptions concerning interest
and discount rates, growth
projections and other assumptions
of future business conditions. The
assumptions employed are based
on management’s judgment using
internal and external data. We
utilize independent valuation
experts, if needed.
If actual results are not consistent
with our assumptions and estimates,
we may be exposed to an additional
impairment charge associated with
goodwill and/or intangible assets.
The carrying value of goodwill and
intangible assets, excluding
capitalized software, was $527
million, including $206 million of
unamortizable customer
relationships, as of December 31,
2008.
We determined that the majority of
our customer relationships, which
are intangible assets, have indefinite
lives. In addition to the impairment
testing noted above, we assess the
appropriateness of that indefinite
life annually.
We completed our annual
impairment testing for all goodwill
and other intangibles using the
methodology described herein, and
no impairment charges were
recorded for the year ended
December 31, 2008.
Capitalized Software
Our capitalized software, which
includes internal and external costs
incurred in developing or obtaining
computer software for internal use,
is included in other intangible
assets.
We are required to make judgments
to determine if each project will
satisfy its intended use. In addition,
we estimate the average internal
costs incurred for payroll and payroll
related expenses by department for
the employees who directly devote
time relating to the design,
development and testing phases of
the project.
If actual results are not consistent
with our judgments, we may be
exposed to an impairment charge.
The net carrying value of
capitalized software as of December
31, 2008 was $166 million.
On a quarterly basis, we evaluate
whether there are any events that
indicate impairment of our various
technologies.
During the year ended December
31, 2008, no significant impairment
charges were recorded.
Revenue Recognition
Our assessment revenues that are
based on quarterly GDV or GEV are
recorded utilizing an estimate of our
customers’ performance. Total net
assessment revenues included an
estimate as of the end of the period
for 25%, 26% and 26% of those net
Our assessment revenues that are
based on quarterly GDV or GEV
are recorded utilizing an estimate of
our customers’ performance. Such
estimates are subsequently
validated against performance
reported by our customers.
If our customers’ actual performance
is not consistent with our estimates
of their performance, revenues may
be materially different than initially
recorded. Historically, our estimates
have differed from the actual
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