McKesson 2012 Annual Report Download - page 68

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
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Loss Contingencies: We are subject to various claims, other pending and potential legal actions for damages,
investigations relating to governmental laws and regulations and other matters arising out of the normal conduct of
our business. When a loss is considered probable and reasonably estimable, we record a liability in the amount of
our best estimate for the ultimate loss. However, the likelihood of a loss with respect to a particular contingency is
often difficult to predict and determining a meaningful estimate of the loss or a range of loss may not be practicable
based on the information available and the potential effect of future events and decisions by third parties that will
determine the ultimate resolution of the contingency. Moreover, it is not uncommon for such matters to be resolved
over many years, during which time relevant developments and new information must be reevaluated at least
quarterly to determine both the likelihood of potential loss and whether it is possible to reasonably estimate a range
of possible loss. When a loss is probable but a reasonable estimate cannot be made, disclosure of the proceeding is
provided.
Disclosure also is provided when it is reasonably possible that a loss will be incurred or when it is reasonably
possible that the amount of a loss will exceed the recorded provision. We review all contingencies at least quarterly
to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or
range of the loss can be made. As discussed above, development of a meaningful estimate of loss or a range of
potential loss is complex when the outcome is directly dependent on negotiations with or decisions by third parties,
such as regulatory agencies, the court system and other interested parties. Such factors bear directly on whether it is
possible to reasonably estimate a range of potential loss and boundaries of high and low estimate.
Business Combinations: We account for acquired businesses using the acquisition method of accounting, which
requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair
values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as
goodwill. Acquisition-related expenses and related restructuring costs are expensed as incurred.
Recently Adopted Accounting Pronouncements
Revenue Recognition: On April 1, 2011, we adopted amended accounting guidance on a prospective basis for
multiple-element arrangements entered into or materially modified on or after April 1, 2011. The amended guidance
incorporates the use of a vendor’s best estimate of selling price, if neither vendor specific objective evidence nor
third party evidence of selling price exists, to allocate arrangement consideration and eliminates the use of the
residual method. Implementation of this new guidance did not have a material impact on reported net revenues as
compared to net revenues under previous guidance as the incorporation of the use of a vendor’s best estimate of
selling price and the elimination of the residual method for the allocation of arrangement consideration did not
materially change how we allocate arrangement consideration to our various products and services or the amount
and timing of reported net revenues.
On April 1, 2011, we adopted amended guidance for certain revenue arrangements that include software
elements. The guidance amends pre-existing software revenue guidance by removing from its scope tangible
products that contain both software and non-software components that function together to deliver the product’s
functionality. The amended guidance was adopted on a prospective basis for revenue arrangements entered into or
materially modified on or after April 1, 2011. The adoption of this amended guidance did not have a material effect
on our consolidated financial statements.