MasterCard 2011 Annual Report Download - page 73

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Financial Statement Caption/
Critical Accounting Estimate Assumptions/Approach Used
Effect if Actual Results Differ
from Assumptions
Asset Impairment Analyses
Prepaid Customer and Merchant Incentives
We prepay certain customer and
merchant business incentives. In the
event of customer or merchant
business failure, these incentives
may not have future economic
benefits for our business.
Impairment analysis is performed
quarterly or whenever events or
changes in circumstances indicate
that their carrying amount may not
be recoverable. The impairment
analysis for each customer requires
an estimation of our customer’s
future performance and an
assessment of the agreement terms
to determine the future net cash
flows expected from the customer
agreement.
Our estimates of customer
performance are based on
historical customer performance,
discussions with our customer and
our expectations for the future.
If events or changes in
circumstances occur, additional
impairment charges related to our
prepaid customer and merchant
incentives may be incurred. The
carrying value of prepaid customer
and merchant incentives was $471
million at December 31, 2011.
Goodwill and Intangible Assets (excluding Capitalized Software)
We perform analyses of goodwill
and indefinite-lived intangible
assets on an annual basis or sooner
if indicators of impairment exist.
We review intangible assets with
finite lives for impairment based on
undiscounted cash flows when
events or changes in circumstances
indicate that their carrying amounts
may not be recoverable.
Goodwill and intangible assets are
assigned to our reporting units. The
fair value of each reporting unit is
compared to the carrying value of
the respective reporting unit. Our
goodwill policies are fully described
in Note 1 (Summary of Significant
Accounting Policies) to the
consolidated financial statements in
Part II, Item 8 of this Report.
When performing our annual
goodwill impairment test, we utilize
a qualitative assessment to determine
whether it is more likely than not
(that is, a likelihood of more than 50
percent) that the fair value of the
reporting unit is less than its carrying
amount and whether it is necessary to
perform the two-step goodwill
impairment test. In performing the
qualitative assessment, we consider
relevant events and conditions,
including but not limited to,
macroeconomic trends, industry and
market conditions, overall financial
performance, cost factors, company-
specific events, and fair value
history.
When reviewing intangible assets
with finite lives for potential
impairment, we exercise
significant judgment using
internally generated data to
estimate future cash flows.
If market conditions or business
conditions change in the future, we
may be exposed to impairment
charges associated with
goodwill and/or intangible assets.
The net carrying value of goodwill
and intangible assets, excluding
capitalized software, was $1.4
billion, including $189 million of
unamortizable customer
relationships, as of December 31,
2011.
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